THE world money crisis has often been compared to high-stakes poker —a game in which Richard Nixon is coolly expert. According to one theory, he and Treasury Secretary John Connally have been waiting for other nations to play their cards before showing the U.S.'s hand. Under pressure at home and from abroad, they decided last week that the psychological moment had finally arrived. As a result, serious bargaining began over a sweeping new set of values for the dollar and other currencies.
The dealing took place in a meeting of the Group of Ten rich industrial nations, held at Rome's Palazzo Corsini, principally in a conference room decorated with Renaissance paintings of voluptuous nudes. At midweek the Finance Ministers and central bankers of the Ten shooed their aides out of the room and began talking numbers—just how many pounds, francs, marks, yen and lire a dollar should be able to buy. They did not fully agree, and they did not even begin to settle some basic controversies over tariff, farm, investment and defense policies (see box next page). But then progress on the money front vastly increased the chance that the currency crisis will end with a realistic rejiggering of exchange rates rather than a devastating trade war.
Saying the Unmentionable. The breakthrough came when the U.S. at last brought itself to offer two indispensable concessions. First, American officials pledged explicitly to drop the 10% import surcharge as part of a money bargain. Then Connally began talking about the previously unmentionable: outright devaluation of the once almighty dollar. For their part, moneymen from Europe and Japan started discussing just how much they would let their currencies rise against the dollar.
Dollar devaluation seems inevitable. It will not affect the domestic purchasing power of the dollar. But Americans will pay more for Volkswagens, Sony TVs, Givenchy dresses, Swiss watches and all other imports because the prices set for those goods in marks, yen and French and Swiss francs will be higher in terms of dollars. Similarly, the American travelers' dollars will buy less abroad, so the cost of tourism will rise. On the other hand, the foreign-money prices of American coal, computers, jet planes and other exports will drop. Eventually, the U.S. hopes, its exports will rise enough, and imports will be held back enough, to bring the nation's foreign payments into balance.
The dollar dilemma has been the world's primary economic problem since President Nixon on Aug. 15 declared that the U.S. would no longer redeem foreign-held dollars with gold. In the frenetic currency trading that followed, the mark has floated up 12.2% in value against the dollar from its last official rate, the yen 11.6%, the British pound 4.1%. The U.S. seeks to push some foreign-currency values up even more, and make the new rates official; it originally aimed for foreign revaluations averaging 12% to 15%. The Europeans and Japanese have demanded that the U.S. formally devalue the dollar as part of any deal. Although there is little difference between the end results of foreign revaluations and dollar devaluation (TIME, Oct. 4), devaluation would constitute a symbolic humbling of the U.S. currency that Washington has long and fiercely resisted.