PRESIDENT Carter had an inflation crisis. President Reagan
presided over a stock-market crash. Now, President Clinton is faced
with the threat of a dollar crisis.
Since Mr. Clinton took office, the United States dollar has
depreciated nearly 25 percent against the Japanese yen and 12.55
percent compared with the German mark. Last week was a particularly
troubling time for the greenback. It lost 4 percent to 5 percent
against the two currencies. The dollar closed on Friday at 94.14
yen and 1.425 marks.
"What is happening to the dollar is very unsettling," says
Harvey Hirschhorn, executive vice president at Stein Roe & Farnham,
a Chicago investment manager.
The dollar is falling even as the Federal Reserve and other
central banks are trying to stabilize it. Last Thursday the Fed
bought US dollars in an unsuccessful effort to stem the slide. It
was joined Friday by the central banks of Japan, Germany, Britain,
Italy, France, and nine other European countries
A strong defense
On Friday, US Treasury Secretary Robert Rubin issued a strong
defense of the dollar, stating, "A strong dollar is in our national
But foreign-exchange markets shrugged off the statement and
economists began to wonder if the dollar's slide might represent a
shift in the way the dollar is perceived.
"It may be dawning more on people that the dollar is not that
safe-haven reserve currency it used to be," says C. Michael Aho, an
international economist at Prudential Securities Inc. in New York.
Some economists, however, believe the latest slide is related to
factors outside of US control. For example, it is close to the
Japanese corporate year-end when many companies repatriate their
"There is a reduction in demand for dollars," explains Brian
Fabbri, an economist with Paribas Capital Markets in New York.
Demand for marks is also strong in Europe where political
problems are driving investors toward the German currency.
Last week, British Prime Minister John Major narrowly survived a
vote of confidence on European issues and the French socialists are
stronger than expected. In addition, some of the continent's weaker
currencies, such as the Spanish peseta and Italian lira are falling.
Traders are also still unhappy over the US bailout of Mexico.
"It is the way we tried to handle it -- by throwing money at the
problem," Mr. Hirschhorn says. …