President-elect Donald Trump has tapped former Goldman Sachs partner and his campaign treasurer Steven Mnuchin to be the next Secretary of the U.S. Treasury Department. It’s a key post, and if he’s confirmed, he’ll be putting his John Hancock on every new U.S. dollar that comes off the presses.
But other than that, what does a Secretary of the Treasury actually do?
Mind the greenback
The Treasury Secretary is ostensibly responsible for the U.S. policy toward the world’s most important currency: the dollar.
In practice, this job is a piece of cake. The official policy on the U.S. dollar is that we want a “strong dollar.” So, the Treasury secretary’s job is basically to say the administration remains supportive of a “strong dollar” whenever asked. This is easy to do because, essentially, it means nothing.
While the Treasury secretary is the public face of U.S. dollar policy, he doesn’t really control how strong or weak the dollar is. That’s largely determined in the global currency markets, based on a range of factors such as inflation rates, federal deficits, and interest rates set by the Federal Reserve.
For example, the U.S. dollar is quite strong right now, largely because the Fed is widely viewed to be moving toward higher interest rates, including a hike expected at its meeting in December.
Talk to the Street
The Treasury secretary is responsible for managing the country’s roughly $14.4 trillion debt that is held outside government trust funds. That involves paying interest payments and regularly refinancing billions of dollars worth of debt working through the Treasury’s network of primary dealers, the big Wall Street banks that are approved — and in fact, required — to bid at regular auctions of U.S. government debt. The market for U.S. government debt is one of the world’s largest bond markets. And the Treasury secretary is by definition one of the most important people in the world for financial markets.
The Treasury Department is the parent agency of the Internal Revenue Service, which was responsible for collecting some $3.25 trillion in tax payments while processing 243 million returns and issuing $400 billion in refunds in 2015.
Formulate economic policy
The Treasury secretary’s latitude to formulate economic policy varies depending on how different administrations operate. For instance, George W. Bush tended to defer on matters of economic policy to his last Treasury secretary, Hank Paulson. On the other hand, early in the Obama administration, the White House coordinated economic policy through the National Economic Council, which took recommendations from various agencies and presented options to the president. More recently, Obama’s Treasury secretary, Jacob Lew, has taken the policy lead on countering a wave of corporate tax “inversions,” in which companies arrange to merge with a company headquartered in a country with lower tax rates, like Ireland, in order to avoid paying U.S. taxes.
Given President-elect Trump’s lack of experience with economic policy — as opposed to private business — Mnuchin will likely have significant influence on economic policy and has already indicated he intends to focus on reshaping U.S. taxes.
Be a firefighter
When the financial system periodically explodes, the Treasury secretary has to be on the scene trying to work out solutions, whether they be Clinton-era efforts to counter emerging market crises in Asia and Mexico by then Treasury Secretary Larry Summers, or the more recent efforts to avert total collapse of the U.S. financial markets. That was a joint effort between the Treasury Department — led first by Paulson under Bush and later by Timothy Geithner under Obama — and Ben Bernanke’s Federal Reserve. While the recent financial crisis was hopefully a 100-year flood, Mnuchin’s connections to Wall Street could help him there.
The Treasury Department is the parent agency of the Office of the Comptroller of the Currency, one of the country’s main banking regulators. Treasury regulation of the financial system is also a key pillar of the regulatory overhaul of U.S. finance known as the Dodd Frank Act, passed in 2010 after the financial crisis. Share prices of banks have been rising sharply since Trump’s electoral college victory, in anticipation of lighter regulation under a Republican administration.
Project U.S. financial power
In recent years, the Treasury Department has become increasingly involved in areas of international policy, leveraging America’s central role in global business and finance to push U.S. policy priorities. The Treasury Department has been at the heart of efforts to impose sanctions on North Korea and Russia for example. And Treasury helped coordinate the effective financial sanctions that were credited with inflicting serious pain on Iran and ultimately bringing the Islamic Republic to the negotiating table.