For the rest of the world, the dollar bill is stretching too far. In economists' jargon, it has become overvalued in relation to other currencies. Fritz Leutwiler, president of the powerful Swiss Central Bank, put it simply the other day when he said: "I'm not deploring a strong dollar, but I deplore the weakness of the Swiss franc, which doesn't help us in the fight against inflation."
In a nationalistic way, it's normal for the United States to feel good about a strong dollar, especially after taking so much guff from the Europeans a few years back about a weak dollar for which, they said, we were showing only "benign neglect." A strong currency, after all, does reflect a strong national economy.
But there is something else going on, beyond economic considerations, to explain the strength of the dollar. Despite a predictable small correction in the past few days, the dollar is up 20 to 30 percent since the beginning of the year against most European currencies. This "hard" dollar, above all, reflects a worldwide conclusion that the United States is a haven of political stability, compared with a tense and sometimes chaotic Europe. It is also the way the financial world tips its hat to Ronald Reagan for restoring a sense of confidence in the United States as a leader of the Western world.
I have just returned after three weeks in Switzerland, France and England. Everywhere I've been, people see the European continent as the site of political upheaval, and -- on a worst-case basis -- fear that it may again be the battlefield in a big powers' clash.
Suddenly, the compacted European geography is the compelling factor for the men who deal in big money. A military eruption on the Polish-Soviet border would be just a few miles from the financial centers of Frankfurt or Zurich. Result: the dollar skyrocketed while the European currencies plunged. For me -- and it was a new experience, on assignment or as a tourist -- it meant that I was anxious to unload as fast as I could the Swiss francs I was carrying, and preserve as long as possible my dollar-denominated travelers' checks, which were more valuable daily.
For the European businessman and investor, the rise of the dollar -- and the related factor of high interest rates in the United States -- meant an acceleration of the capital flow away from Europe. In Zurich, banker Hans Baer told me bluntly that many of his foreign customers would rather keep their money in New York because "Warsaw looks awfully close to Zurich."
To some extent, the panicky feeling evident in Europe can also be traded to the victory of Socialist Francois Mitterrand over Valery Giscard d'Estaing, which touched off a flight of capital from France, and probably hastened a sympathetic flow of investment money from other European centers. Whether a weak franc persists -- as many analysts predict -- remains to be seen. I have the seat-of-the-pants feeling that anxiety over Mitterrand will die down.
There are other negative factors, however, that will continue to work in favor of the United States and against Europe, including a period of economic stagnation that now faces the Common Market. But the member nations bicker among themselves -- for example, in trying to adopt a common posture to deal with Japanese competition in autos, high techonolgy and consumer electronics.
West German, the most powerful member of the Common Market, is going through an economic and political crisis of its own, with an unemployment level too dangerous for the Schmidt government's comfort. Yet, the Germans, followed by the Swiss, have had to follow a restrictive monetary policy, pushing interest rates up to prevent the gap between their own investment yeilds and those in the United States from widening even further.
When Leutwiler complains about the inflationary impact on Switzerland of a strong dollar, he means that dollar-denominated imports -- including Arab oil -- suddenly cost more. Throughout most of the world, oil bills are paid in dollars. In effect, when the Swiss franc or the German mark goes down 20 or 25 percent, that means that their oil bills go up by that much.
But we could be at the early stage of a new cycle, in which higher-priced American exports become less competitive, reversing the present relationships with Europe, recreating a trade deficit and weakening the dollar over the next year or two. The conventional wisdom in Europe is that U.S. interest rates will come down, negating another one of the props for the dollar. But so far as I can tell, that should be labeled a hope rather than a prediction.
Even if interest rates do come down, political trends could overwhelm the economic factors, keeping the dollar strong. If the Russians remain a threat to tranquillity in Europe, European currencies may remain weak, regardless of underlying economic trends. In today's unpredictable times, better throw away the standard rule books.