Anger at Dollar Imperialists

The men who manage Europe's money are increasingly annoyed with the U.S. They are upset by America's old habit of spending, lending and investing more abroad than it takes in from foreign sources--and its new habit of not worrying much about the deficit. Last year the U.S. balance of payments deficit rose to $7 billion, or twice as much as the deficit that stirred deep public concern in 1967; first-quarter figures indicate that this year's deficit will be still higher.

Last week, as moneymen from 50 countries gathered at the Bank for International Settlements in Basel, Switzerland, B.I.S. Chairman Jelle Zijlstra warned in unusually strong language that, by causing a world glut of dollars, the huge U.S. deficits "form the monetary breeding ground for a continuing international inflationary process." If worldwide inflation continues too long, he said, worldwide recession is "inescapable." The B.I.S. annual report added that it is "hard to discern how the U.S. authorities expect, by their own actions, to correct the balance of payments."

This situation also worries many U.S. economists, notably Robert Triffin, one of the world's leading monetary experts. A short, round-faced, friendly man, Triffin was born and educated in Belgium, became a U.S. citizen in 1942, and is now master of Berkeley College at Yale. He has long advised both U.S. and European governments; he was among the first to suggest creation of the new international money that last year came into being as Special Drawing Rights, or paper gold. At a recent meeting of TIME'S Board of Economists, of which he is a member, he offered this analysis:

The U.S. is unconcerned about its deficits because it has discovered that it can get away with a kind of "monetary imperialism." The position of the dollar as the standard of value against which all other currencies are measured enables the U.S. to escape the consequences that other countries suffer if they consistently overspend abroad. In any other country, a parade of deficits comparable to those the U.S. has run would force devaluation of the currency. Devaluation of the dollar, the currency that more than any other has been considered as good as gold, would bring such chaos that it has been considered unthinkable.

More Revaluations. In theory, central banks of nations that become loaded with dollars can still send the dollars back to the U.S. and demand repayment in gold. They are afraid to do so, says Triffin, because the U.S. gold stock, at $12 billion, is far lower than the $43 billion of potential foreign claims against it. The Europeans fear that if any large number of dollars are presented for redemption, the Treasury will simply stop selling U.S. gold. That, says Triffin, leaves foreign nations three courses of action--all of which hurt them:

> Foreign commercial banks can lend dollars back to the U.S. Last year U.S. banks borrowed a startling $9 billion of Eurodollars. That gave the banks more money to lend in America, and eased the sting of the Federal Reserve's tight-money policy. But the U.S.'s borrowing drove Eurodollar interest rates as high as 12%, and the rise helped to pull up all other European interest rates. > Foreign central banks can buy up unwanted dollars and hold them in official reserves. In West Germany, the Bundesbank last week bought $500 million that flooded in--mostly from speculators--during a single day. This process is inflationary, because the foreign currency paid out for the dollars adds to the money supply in the country that does the buying. -- Foreign governments can allow the price of their own currencies to rise, usually by formal revaluation. That reduces the inflow of unwanted dollars, but a revaluing country must resign itself to seeing its export prices go up. Even so. West Germany revalued the mark last year, and Canada is currently letting the price of its dollar rise in relatively free trading. Some European central bankers foresee a series of upward revaluations, in about a year or 18 months, of the Swiss and Belgian francs, the Dutch guilder, the Japanese yen, and probably the German mark again.

That could pose a danger for the U.S. Right now American officials welcome revaluations because they tend to lower the price of U.S. goods in foreign markets. But revaluations also amount to a gradual cheapening of the dollar measured against other currencies: too many revaluations too close together could shake foreign faith in the dollar as the prop of the world financial system. The outcome could be another series of monetary crises, and perhaps imposition in self-defense by many countries of the exchange controls and trade restrictions that the U.S. has fought hard to dismantle.

A Matter of Faith. European countries are organizing to give themselves more muscle to force the U.S. to restrict the outflow of dollars. Partly at Triffin's urging, the six nations of the European Common Market are moving to set up a joint reserve fund as an initial step toward a common currency. The directors could make collective decisions on how many dollars to accept in the European reserve fund and on the management of any revaluations. They could also impose joint restrictions on the amount of Eurodollars that U.S. banks could borrow. That would hurt money-short U.S. businesses by cutting down the supply of lendable funds in America. In the long run, a common European currency would reduce the world's dependency on the dollar by introducing a potent rival in the exchange markets.

If Washington wants international financial stability, says Triffin, it must ultimately find ways for the U.S. to live within its means. The indispensable first step is to curb the inflation that is damaging the nation's competitive position.

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