The Dollar's Dilemma

"Something has got to give," says Edwin A. Reichers, senior vice president of New York's First National City Bank. "This outflow cannot go on forever."

What worries Reichers, and most other top international bankers, is that dollars have been pouring into foreign countries at an extraordinary rate. Principally because banks repaid the sum of money that they had borrowed abroad, the U.S. balance of payments deficit hit $10.7 billion in 1970, and in this year's first quarter alone it amounted to about $4 billion. Two weeks ago, rumors swept the Continent that several strong European currencies would be revalued upward, in effect devaluing the dollar. On the strength of those rumors, corporate treasurers and nimble speculators sold billions of dollars for other currencies in Switzerland, Belgium, The Netherlands and especially West Germany. Central banks quelled that speculative spree, mainly by buying all the dollars that were offered. But, like a stabbing pain that passes quickly, the minicrisis was a warning that the dollar faces more trouble.

Agonizing Reappraisal. Foreign financial and political leaders are increasingly searching for ways to limit the dollar influx, perhaps by restricting investments financed from the U.S. Though the Europeans and Japanese are reluctant to revalue their moneys, the countries with strong currencies may have to make a joint upward movement of 5% to 10% within a year or two. Washington policymakers would not be at all displeased, because that would make U.S. exports more competitive in world markets. Most often mentioned among the candidates for revaluation: the German mark, the Swiss and Belgian francs, the Dutch guilder, the Japanese yen. For the longer term, the Common Market nations are slowly moving toward creating a Eurocurrency that would challenge the dominance of the dollar in world monetary affairs.

The shakiness of the dollar has also begun to change U.S. domestic economic policy. The Federal Reserve Board has recently started to pay somewhat more attention than it has lately to strengthening the dollar in international markets and somewhat less attention to stimulating the economy at home. It has boosted short-term interest rates again. Combined with interest-rate cuts that were recently made in several Continental countries, this should slow the flow of unwanted dollars into Europe. Still, the deep-seated problems about the dollar's role as the world's key currency remain unresolved. Says Yale Economist Robert Triffin, a prominent monetary expert: "We are in the middle of an agonizing reappraisal--and total revamping--of the international monetary system." No one will predict exactly where it will lead, but almost all experts sense some uneasy times ahead.

This file is automatically generated by a robot program, so reader's discretion is required.