Alan Greenspan is 1988's man on a hot tin roof. As chairman of the Federal Reserve Board, Greenspan will have the key role in deciding whether interest rates should go higher this year to avoid what former commerce secretary Peter G. Peterson calls a ''dollar meltdown.''

The argument (it's already been articulated by British Chancellor of the Exchequer Nigel Lawson) will be that if the United States won't protect its own currency, foreign central banks will quit pumping their citizens' good money into this country. And German central bank president Karl Otto Poehl adds that there must be a limit to the intervention that in the past few days triggered a dollar rally.

If that's the course that Greenspan (along with his fellow Reagan appointees) chooses, a major recession is likely to take place. Will the Fed opt to protect the dollar or to avert recession? The latter choice obviously would help a Republican presidential candidate in November.

At the Treasury, Secretary James A. Baker III will be trying to stave off higher interest rates. ''Baker probably figures he can do more for George Bush by staying at the Treasury than leaving to run the Bush campaign,'' New York economist Henry Kaufman told me.

But Baker can only try to persuade Greenspan not to botch chances for a Republican election victory. Baker can talk and cajole, but Greenspan & Co. have the votes on interest-rate policy. It comes down to a question of what the Fed -- not Baker -- decides should be the nation's top economic-policy priority.

The heat is already mounting on Greenspan, as leader of the Fed, to loosen up on monetary policy. For example, the chairman of the President's Council of Economic Advisers, Beryl W. Sprinkel, has been saying in not-so-subtle public appearances that monetary policy is already too tight.

The last thing the American economy needs at this stage is a dose of high interest rates. You get agreement on that across the ideological spectrum, from conservative Republican Richard Rahn of the Chamber of Commerce of the United States to liberal Democrat and Nobel Prize-winner James Tobin of Yale.

Higher interest rates would make German and Japanese exporters happy because the dollar would go up, bringing the yen and mark down some. But that would chill the American economy by forcing business costs higher and slowing housing and other consumer purchases. And higher interest rates would be a new blow to a stock market that still hasn't fully regained its equilibrium after Black Monday last Oct. 19. A recession could easily become a global depression.

Of course, one way of protecting the dollar without resort to high interest rates would be an honest-to-God deficit-reduction package with real tax increases. That would take the heat off monetary policy. But Congress isn't interested in election-year budget-cutting, and the president turns off whenever higher taxes are mentioned.

But suppose German, Japanese and other foreign investors want to play ''global chicken''? Peterson asks. They could withhold purchases of American government notes and bonds. Then, to attract the money to finance the huge budget deficit, the Treasury would have to pay higher interest rates anyway.

No one has to remind Greenspan that an uncontrolled fall of the dollar brings with it the danger of a new inflation. A cheap dollar, translated into high-priced foreign currencies, does more than just boost the price of imported goods: it also provides a convenient umbrella allowing any lazy American manufacturer to mark up prices, instead of seizing the opportunity to regain lost share-of-market.

As he fences with Greenspan, Baker will counter that the drop in the price of oil reduces the inflation risk inherent in a sliding dollar. Moreover, he will say, a cheaper dollar at least gives American exporters the opportunity to spark a booming economy. And if the Germans don't like what that does to the dollar/mark exchange rate, they have the ability to lower interest rates in their country, and so boost activity at home, as the Japanese appear to be doing.

So the Fed can be excused if it feels it's between the proverbial rock and a hard place. In the end, what the Fed chooses to do is likely to be more of a response to real pressures from foreign central banks than from Jim Baker.

The operative question becomes: Can the Reagan-named Fed governors reach a decision on monetary policy this year that reflects their considered economic -- not political -- judgment?

If the dollar slide resumes, my guess is that Greenspan & Co., being normal central bankers with an institutional bias to protect the currency and fight inflation, may well boost interest rates. They might figure that if they don't, foreign investment will collapse, and the nation and future presidents will face massive problems. Whatever the decision, historians won't be able to chalk it up to politics.