The Dollar Crisis: Floating Toward Reform?

MEASURED by the usual signs—the size of the tidal surges of money across national borders, the confusion of tourists caught with currency that no one would take, the tension at the emergency meeting of finance ministers —last week's international monetary crisis was certainly the worst since World War II. Even so, its true gravity could not be gauged by those factors alone. Precipitated by German Economics Minister Karl Schiller in order to get European agreement on new monetary measures, the upheaval at first seemed artificial and contrived. But it quickly became a pointed revolt against the U.S. dollar, the foundation stone of the whole system of Western finance. For the first time, much of the world, in effect, was asking about the dollar the question that arrogant American tourists sometimes ask about other currencies: "How much is that worth in real money?"

Quick Profit. At week's end, a partial answer began to emerge: the dollar will be worth fewer Deutsche marks, and quite likely fewer Dutch guilders, Austrian schillings and Swiss and Belgian francs. At a tense, day-long meeting in Brussels on Saturday, the finance ministers of the six European Common Market nations reluctantly reached a compromise. They authorized member nations to let their currencies "float" —rise or fall in price, depending on supply and demand—within certain limits above or below their stated dollar value. It seemed almost certain that they would promptly rise. This week the West German Cabinet is expected to permit a limited floating of the mark. Belgium, The Netherlands and Austria may well follow that lead; they trade so heavily with Germany that they cannot allow the value of their moneys to get much out of line with that of the mark.

The European ministers minced no words in blaming the U.S. for their di lemma. Said French Finance Minister Valéry Giscard d'Estaing: "Europe is having to pay for the U.S. policy of growth and full employment." Schiller was even more direct: "The U.S. deficit of payments can no longer be tolerated with benign neglect."

The monetary crisis began when some remarks by Schiller led money speculators to believe that Germany would soon raise the official value of the mark above its present 27.3¢. Speculators immediately started selling dollars for marks, hoping to make a quick profit. Contrary to popular opinion, the speculators are not shadowy characters operating on European back streets; most are treasurers of multinational corporations, many American. At any one time they hold huge quantities of various moneys, and they regard it as only prudent to shift funds out of a currency that looks as if it may fall in value into one that seems likely to rise.

Unavoidable Impact. Once the speculation began, it turned into a stampede away from the dollar, and toward not only the mark but every other strong currency in sight. Foreigners poured an unbelievable $1 billion into Germany in a single hour on Wednesday, and exchanged other giant sums of dollars for guilders, schillings and Swiss francs. Even the Japanese yen became a haven. Tokyo commercial banks holding dollars sold $340 million of them to the Bank of Japan for yen on Thursday alone.