Business: Can Anything Help the Dollar?

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The crises now are coming week by week, and fresh ideas are scarce

The breathing space between dollar crises used to be measured in years, but now it has been cut back to weeks. If last December's tumultuous plunge of the greenback was the worst since the currency upheavals of 1973, its place in the recordbooks was short-lived indeed. Last week the dollar bears were again on the prowl, clawing the bleeding buck to new and worrisome lows against the Japanese yen and nearly all the major trading currencies of Europe.

The dollar's worst performance came in West Germany, where it dropped nearly 4.4 pfennigs in one day, crashing below the psychologically important two-mark barrier before rallying slightly to close the week at 2.02. In Switzerland, the dollar rocketed between extremes of 1.88 and 1.75 Swiss francs within two trading days. The dollar even managed a distinction of sorts by hitting a 17-month low against the Italian lira, one of the world's weakest currencies.

Despite the dollar's steadying at week's end, no one could be sure the improvement would continue. The bleakest aspect of the fall is that no measures designed to strengthen the dollar seem to work any more. The U.S. at the start of the year began buying unwanted dollars to prop up their price; that intervention, which Europeans insisted was too brief, accomplished nothing. The Swiss in the past two weeks have taken a series of drastic steps to stop the rise of the Swiss franc against the dollar; among other things, they lowered interest rates to as little as 1%, imposed a 40% "negative interest" charge on certain foreign deposits of more than 5 million francs in Swiss banks —meaning that depositors must pay 40% a year for the privilege of keeping these accounts—and flatly forbade purchase of Swiss stocks and bonds by nonresidents. Those measures strengthened the dollar's exchange rate against the Swiss franc for all of two days.

The U.S. has tried to nag West Germany into pumping up its economy to reduce the trade surpluses that are prompting conversion of dollars into deutsche marks. The West Germans, fearing inflation, resisted so sternly that the best the U.S. has managed is an agreement under which Washington and Bonn will stop calling each other names in public.

What caused the latest convulsion?

There were numerous handy explanations. From Washington came the unsettling news that the nation's index of leading indicators slipped 1.9% in January, the biggest dip in three years, while inflation speeded up. From Europe came a newspaper interview with West German Economics Minister Otto Graf Lambsdorff, who said that he "could not exclude" the possibility of the dollar's sinking to 1.80DMs.

These were more excuses than reasons. Behind them remains the fundamental problem: the U.S., by spending more abroad than it earns, is spilling out dollars faster than foreigners can absorb them. The measure of that outflow is the nation's trade balance, and it has been deteriorating. Last week the Commerce Department announced that during January the U.S. imported $2.38 billion more than it exported. That was the biggest monthly deficit since last October and more than 40% larger than the January 1977 figure.