POLICY: Nixon's Other Crisis: The Shrinking Dollar

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For the dollar, the float has been more like a submersion, with disastrous results for tourists and Americans living abroad. Last week a U.S. visitor to Paris trying to buy a box of candy with greenbacks was excitedly ushered to a nearby bank by the candy dealer, who insisted that the American exchange his dollars for francs before making the purchase—apparently out of genuine concern that the dollar's price in francs would drop by the minute. A G.I. stationed in West Germany moaned that he could not even accurately budget big outlays like his monthly rent, since the portion of his dollar paycheck needed to cover his mark rental bill has expanded painfully in every recent month.

A good many Americans appear to distrust their own currency, and fear that foreigners will not accept it. The U.S. offices of Perera Co. Inc., money dealers, are thronged with tourists seeking to buy foreign money, or traveler's checks denominated in ten foreign currencies, before they go overseas. They worry that if they take dollars, the price in foreign money will sink farther before they reach their destinations. Nicholas Deak, head of Deak & Co. Inc., which owns the Perera offices, wonders how Perera's staff will get through the summer. "They are already exhausted, and the peak tourist season has not yet started," he says. Gold, the traditional refuge of people who suspect any paper money, soared at one point last week to an unheard-of $ 127 an ounce in London, about triple its official price in dealings between governments.

Mad Scramble. Foreign reluctance to accept greenbacks has motivations beyond the oversupply of dollars. One is an unsophisticated—or perhaps starkly honest—view of Watergate, which amounts to a feeling that the scandal shows that the U.S. Government is in trouble, and that its currency is not to be respected. "As Watergate drags on and more revelations threaten the President's integrity, the more the dollar is likely to come under pressure," warns a Frankfurt money dealer. "That in turn will cause a mad scramble to unload vast amounts of dollars." Foreign sensitivity has reached such a pitch that the dollar recently sold off on reports of the death of Wilbur Mills, the Arkansas Democrat who heads the House Ways and Means Committee and is widely regarded as a symbol of fiscal integrity. Foreigners confused Wilbur, who is very much alive, with Representative William Mills, a Maryland Republican who died last month as an apparent suicide.

Once again, though, U.S. inflation enters the picture. Logically, the dollar now appears undervalued to many financial experts in the U.S. and abroad. But the more American prices go up, the greater the loss of faith in the dollar and the quicker dollars flow out of the U.S. into stronger currencies, worsening the U.S. balance of payments. To some extent, the concern of overseas countries may represent a holier-than-thou attitude; Europe and Japan suffer roaring inflations of their own. Yet the U.S., after posting one of the lowest inflation rates of any industrialized country during 1972, has made the unhappy switch to catching up with many of its trade partners.

Thus all the aspects of the U.S. economic malaise interact in circular fashion to intensify one another. Rapid U.S.

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