Business: Shrinking Role for U.S. Money

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The best-selling novel The Crash of 79 described just such an avalanche. The result was a thumping destruction of all the foundations of industrial society as nations returned to barter economies. Financial experts tirelessly insist that in the nonfiction world such a collapse would be impossible. One reason is that well over half of foreign trade, including sales of oil, metals and grain, is billed in dollars.

And despite attempts by central banks to diversify their currency holdings, 77% of all official reserves are still dollars; thus many governments have an interest in holding up the value of the dollar.

Ministers in Belgrade took a step to ensure that the crash of '79 remains fiction by reducing the hazardous excess of dollars. They agreed to press work on a plan to replace perhaps as much as $40 billion in dollars with bonds denominated in a basket of 16 currencies, including two from OPEC countries—Saudi Arabia and Iran. This could be approved at a meeting in April.

As the dollar is being eased out of the cornerstone position it has held since World War II, gold and some strong currencies are moving in. The American campaign to remove gold from the world money system has failed;, as one example of bullion's continuing monetary role, the seven-month-old European Monetary System that links seven Common Market currencies has gold as a centerpiece. Fritz Leutwiler, the president of the Swiss National Bank, quotes from the Book of Job: "I have made gold my hope or have said to the fine gold, Thou art my confidence." Some leading Americans are even beginning to challenge Carter's policy of selling off the U.S. gold reserve. Former Federal Reserve Chairman William McChesney Martin says that if he were still in office, the U.S. would sell gold only "over my dead body."

The Bundesbank's Pohl sees the world "moving inexorably toward a multicurrency arrangement." The European Monetary System is anchored on the German mark, while the Japanese yen is developing an important role in Asia as a trading currency. The oil-backed Saudi Arabian riyal could be a new powerhouse, but the Saudis have been reluctant to let it play a role in international loans.

While world moneymen continue slouching toward a new financial Bethlehem, it becomes clearer that the only real way to restore the dollar's health is to cut America's inflation. As long as prices continue climbing at a rate of 13% in the U.S., compared with 6% in West Germany, the dollar will sink and the mark will rise. In such circumstances the dollar is lost, and attempts to save it will only ruin the nation's industry by making such exports as computers, airplanes and chemicals vastly too expensive in Japan or Germany, and imports like autos far too cheap at home. Former Fed Chairman Arthur Burns told the Belgrade conference that the turmoil in world exchange markets would not end until "reasonably good control over inflationary forces has been achieved, especially in the U.S."