The U.S. dollar is in trouble again.
For the past several weeks, America's currency has been taking a beating on the foreign exchange markets - plummeting in relation to the West German mark and the Japanese yen. Last week, the dollar fell to an all-time low, and by week's end, a London-based dealer was speculating publicy that the plunge "looked frightening." Some traders were predicting "a state of turmoil" for the rest of the year.
From at least one standpoint, the falloff is significant. As Arthur F. Burns, chairman of the Federal Reserve Board, has pointed out, the dollar still is the major reserve currency for most major nations, so whatever happens over the long run could affect the entire world economy.
But apart from that recognition, international analysts say the most recent slide is not all that important. To begin with, the dollar's general depreciation is part of a gradual adjustment to the 1973 boost in oil prices - a worldwide phenomenon that the government can't really do anything about. Second, economists say except for raising a few import prices, it is unlikely to have much impact - either on consumers or U.S. prestige.
Indeed, the administration has argued privately that allowing the dollar to dip may be the best alternative for resolving current trade and monetary problems. While policy makers are not encouraging continued slippage, they are not fighting it, either. In effect, the U.S. has ratified the decline. Only the West Germans and Japanese have intervened.
The slide has its roots in the 1973 Arab oil embargo. The quardrupling of crude oil prices then created economic shock waves, leaving many of the major industrial nations with massive trade and balance-of-payments deficits. The U.S. withstood the onslaught for several years. The payments balance remained virtually unaffected through 1976. But this year, events finally caught up with the United States: economists expect a deficit of $10-$15 billion.
The move to allow a deficit was a conscious decision by American policy makers. Until just this year, the impact of the 1973 oil-price increase had been borne mostly by the weaker industrial powers (France and Italy) and the developing nations. Then the U.S. came under pressure to ease some of that burden by absorbing part of the tab itself. The Carter administration agreed, and the stage was set for the present shift.
The problem was, contrary to its hopes at the start of the President's term, the administration was not able to get other major powers to share the load. Despite heavy U.S. pressuring, West Germany and Japan have refused to stimulate their own economies more rapidly.
Under the new system of free-floating currency rates, when individual nations do not make domestic policy to counter shifts in economic conditions, the "adjustments" are made in the exchange markets. As a result, the yen. in particular, has appreciated sharply in relation to the dollar, followed by the Deutschemark and the Swiss franc. And correspondingly, the relative value of the dollar has gone down.
The slippage has been significant. Measured against the performance of the major world currencies, the dollar has plunged an average 4 per cent since the start of the year. The yen has soared by 24 per cent in this period; the mark by 17 per cent; and the British pound by 10 per cent, (At the same time, the dollar has risen 28 per cent against the Italian lira; 9 per cent against the Canadian dollar; and 7 per cent against the French franc.(
But on a so-called "trade-weighted" basis - a measure that takes account of the volume of commerce with each of these countries - the slippage is much less. On an overall basis, the dollar has fallen only 0.25 per cent since November of 1976; the yen is up 20 per cent over the period and the mark is up 4 per cent. (The difference stems mainly from the relative stability of the Canadian dollar. Canada is America's largest trading partner.)
Most important, the slide does not seem to be bothering the U.S.'s major trading partners. The oil-producing countries still are investing in dollars (rather than returning to sterling). And analysts say there is no evidence of any deterioration in U.S. competitiveness on trade.
To be sure, the slippage has added some to inflation here. Two leading importers of Japanese cars, Toyota and Honda, announced last week the boosting U.S. prices of their 1978 models by 3 to 4 per cent to account for the increase in the yen. But overall, analysts say the price impact is not that serious. The White House estimates the shift has added a scant 0.2 per cent to the U.S. inflation rate. And U.S. exports now cost less abroad.
In all, both government and private analysts tend to discount the slide as an acceptable - if not altogether desirable - development. Says one U.S. official involved in the currency flap: "It's mainly a nervous psychology in the markets that's causing the ruckus."
Indeed, top Treasury policy makers have suggested that the dollar-slide may be the best of several available alternatives. The only thing in U.S. could do to prevent the dollar from falling would be to trim its burgeoning trade deficit - and that can't be done unless someone figures how to cut oil imports.
Moreover, some economists argue that allowing the dollar to slide may be the most effective way to prod the West Germany and Japanese into pushing their econimies faster. "What's missing from all the discussion," says Robert Solomon, a Brookings Institute monetary expert, "is that when a country's currency appreciates, if it doesn't go for more stimulative policies its economy will become more depressed." The lates slide, he says, may spur them on harder.
In fact, to many economists, the slide merely is pointing out a truism: that it is West Germany and Japan, and not the U.S., that actually must "adjust" to the new economic realities. The U.S. economy is stronger than that of its major trading partners; the U.S. inflation rate is better than that of most countries and the dollar is not overvauled. It is the yen and the mark that have been undervalued in recent months - and therefore pushed by the markets.
Where it finally will end is a matter of speculation.
U.S. officials are conspicuously avoiding any public statements. But some analysts believe that, barring any increase in the normal jitters in the markets, the long slide of the dollar at last may be coming to an end.
Indeed, Japan already appears to be preparing to take new measures domestically to spur its economy more rapidly (despite Japanese assertions that Tokyo is meeting its economic goals, industrial production in Japan rose only 1.7 per cent between the third quarter of 1976 and last quarter), and some say West Germany may not be far behind.
In the meantime, most analysts admonish that the daily score-figures on the latest dip in the dollar's value are not nearly as worrisome as those nameless currency traders make them out to be. As long as the dollar's decline continues to be gradual, experts say, the depreciation won't be a problem for anyone to fret much about. In interpreting the markets, analysts note that all that jitters is not gold - or necessarily very serious.