Heady Days for the Dollar

The payoff and the perils of a strong currency

The economic turn-around promised by Ronald Reagan is still dim and distant, but at least one stunning shift in U.S. financial fortunes has already unfolded: the rebound of the dollar. Since January, the American currency has risen by 14% against the Japanese yen, 27% against the West German mark and 33% against the Italian lira.

The spectacular surge in the value of American money is an abrupt reversal of a decade-long, disorderly slide that began in August 1971, when President Nixon severed the dollar's traditional link to gold. In the years that followed, relentless...

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