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The strength of the dollar has historically been tied to the strength of the U.S. economy and the faith that investors have in doing business in America.

The good news is that a competitive dollar in the global market and a strong dollar at home are compatible in both the long run and during the transition to a more competitive dollar.

The more competitive value of the dollar turned around the trade deficit.

And I am convinced that a single focus on preserving the purchasing power of the dollar, in effect, guarding against inflation or deflation, actually creates a solid foundation for the greatest job growth and the strongest economy that America can have.

If the Federal Reserve pursues a strong dollar at home while the dollar becomes more competitive in global markets, we can achieve both price stability and a more balanced path of economic growth.

To the extent the dollar gains strength relative to other currencies, assets priced in those other currencies would become cheaper on a dollar basis.

After all, an overvalued dollar gives us the ability to buy foreign goods at lower prices. And the existing volume of exports brings more yen and euros than they would if the dollar were more competitive.

But the primary reason for wanting the dollar to become more competitive in the near future is that we may need an increase in exports this year and in 2007 to sustain the economy's current pace of expansion.

I think a strong dollar is the result of policies, but I don't think the strong dollar is in and of itself a policy.

In short, both experience and economic theory imply that the US could now t to a more competitive dollar without experiencing either increased inflation or decreased economic growth.