The Fall of the Dollar Order: The World the United States is Losing

A sailor embracing his girl in Times Square amid cheering throngs may be the dominant image of America's victory in World War II. Today Times Square is full again, but this time with foreign tourists, who crowd into New York and other American cities, eagerly hunting bargains with their ever?strengthening currencies. During the first quarter of 1995, the dollar plummeted to record lows against the Japanese yen and German mark. A cheaper dollar has brought tourist income to the United States, setting off a boom in the service sector. Yet at the same time the declining dollar has made American manufactures more competitive against foreign goods, both at home and abroad.

All is well, proclaim Clinton administration officials. Treasury Secretary Robert E. Rubin says that "a strong dollar is in the United States' national interest" but suggests no steps to realize his incantation. Declaring himself helpless against the foreign exchange market turmoil, President Bill Clinton asserts that "the ability of government to affect currencies in the short run may be limited." In the end, the administration is indifferent to the slide of the dollar as the premier reserve and trading currency.

American domestic prosperity during the Cold War, as Clinton and Rubin hardly seem to recognize, was based on a triad of factors: American domestic economic policy, American security policy, and American foreign economic policy, in particular the role of the dollar. The synergy among these three elements has brought prosperity at home and security abroad. V?E Day marked the beginning of the dollar era. If the administration does not change its laissez?faire dollar policy and cut the budget deficit, boost savings, and take a hard line on trade, the 50th anniversary of V?E Day will signify its collapse.

THE BATTLE OF THE PLANS