Yesterday was a record-shattering day of new highs for the dollar in the world's foreign exchange markets. Despite reported intervention by the West German central bank to prop up its currency, the German deutsche mark plunged to an 11 1/2-year low against the dollar, while several other European currencies dropped to their all-time lows.
A Federal Reserve Board index of the dollar's value compared with 10 other major currencies rose to the highest level since the Fed began keeping such records in 1967.
The British pound, French franc, Italian lira, Spanish peseta and the Danish and Norwegian kroner hit new lows against the dollar and the Dutch guilder was at its lowest dollar quotation in 13 years.
Beset by West Germany's economic problems, the mark dropped in Frankfurt to 2.9453 to the dollar, from 2.9180 the day before. The mark seems poised to go to 3 or more to the dollar, a ratio that would have seemed impossible just a few years ago. At the time of a huge dollar "rescue" package launched by the Carter administration in October 1978, the mark was at an all-time high of 1.70 to the dollar.
The pound fell to a new low of $1.2815, as sterling continued to reflect concern over possible new strikes. The pound's value against the dollar has been cut nearly in half from a $2.55 peak in early 1981.
The strong dollar is a boon to American consumers at home -- who benefit from lowered prices for imported goods -- and to American tourists abroad. In Paris, for example, the franc plunged to a new low of 9.045 to the dollar, and dealers said they are anticipating a 10-franc rate, according to United Press International.
But a strong dollar is also bad news for American exports and exporters, and a major reason for the huge U.S. trade deficit, which is expected to hit about $130 billion this year. Last week, the Commerce Department announced a record July trade deficit of $14 billion, news that in other times would have depressed the dollar's exchange rate.
The basic factors in the dollar's surge are the same as they have been for months -- extraordinarily high interest rates and a strong, highly profitable and safe American economy that attracts investment funds.
In a recent report for Becker Paribas Inc., Washington economist Edward M. Bernstein suggested that the preference for dollar assets may be a bigger factor than the more frequently cited bulge in interest rates.
Bernstein, a Brookings Institution scholar, argued that the 82 percent appreciation of the dollar against currencies in the European Monetary System in the four years ending in mid-1984 "came from the enormous inflow of foreign capital," which is only partially recorded in official statistics.
From 1980 to 1983, the "statistical discrepancy" net errors and omissions listed in the official U.S. balance of payments record came to a huge $89.5 billion. Bernstein says there is good reason to believe that most of this represents "the unreported inflow of foreign capital."
Much of this demand for dollars has been for direct investment in this country, Bernstein says. Europeans, dubious about the outlook for growth and profits in their own countries, have been financing new enterprise as well as takeovers of established American companies. In the 1980-83 period, according to his figures, foreign direct investment here exceeded American direct investment abroad by an average of $15.4 billion a year.
In an interview yesterday, C. Fred Bergsten, of the Institute for International Economics, said that in addition to the factors pointed out by Bernstein, the strength of the dollar now also seems to be reflecting, in part, the weakness of the West German economy and the deutsche mark.
"It's not only a 'pull' from the dollar, but a 'push' from the market," Bergsten said. "There have been a lot of doubts lately about the German economy and the German work ethic." Bergsten suggested that there are three "tiers" of currency today, all reflecting the status of economic strength or weakness:
*First, there is the dollar, strong against all others, because the U.S. economy is growing at a phenomenal real rate.
*Second, there is the Japanese yen, which -- although weak against the dollar -- is close to an all-time high against European currencies, reflecting its 4 percent real growth rate and strong exports.
*And third, and "at the bottom," are the weak European currencies, especially the continental currencies.