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By 1971 the U.S. could no longer maintain the tottering system, so the Nixon Administration abruptly announced that it would stop redeeming dollars for gold. That left U.S. allies stuck with dollars that were worth only what they would bring on the exchange markets. Two formal dollar devaluations followed, and eventually, five years ago this month, fixed exchange rates were dumped. Throughout this process, the U.S. seemed complacent, even proud. John Connally, who was Treasury Secretary when the gold window slammed shut, boasted that he had acquired a reputation as "a sort of bullyboy on the manicured playing fields of international finance." Nixon's own attitude was immortalized by a casual comment on a Watergate tape: "I don't give a shit about the [Italian] lira."
Though it is obviously unfair to tax the Carter Administration with the sins of its predecessors, there is no escaping the legacy. That legacy is, in fact, a large part of the reason that the transatlantic debate over the dollar has turned into a dialogue of the deaf. Since early last year, Washington has been urging Bonn to expand its economy and bring its growth rate up to the U.S. level. If West Germany did that, its trade surplus would shrink and the deutsche mark would cease its inexorable rise against the dollar. When Administration officials charge that West Germany's refusal to cooperate really amounts to an effort to have things both ways, they have a point. By refusing to pump up its economy, and choosing instead to keep its factories humming as a result of demand from the U.S., Bonn has copped a free ride out of the 1974-75 global recession, and avoided the inflationary risks inherent in stimulating West Germany's own domestic demand.
But Washington's efforts to get Bonn to change its mind and begin sharing some of the burdens of growth have been rendered counterproductive by the way the Carter Administration has wielded the dollar as if it were some sort of international shillelagh. That attitude has merely aroused suspicions in Bonn that Washington is once again trying to push its own inflation off on its friends. Says William Pfaff, associate director of the Hudson Institute Europe consulting firm in Paris: "There is a feeling in Europe that Washington is interested in Europe when it wants something from Europe, and that otherwise Washington has its own problems and doesn't care much." Geneva Banker Nicolas Krul adds: "What we see is a key country simply giving up its role of economic leadership and mismanaging the world's most important reserve currency."
Faced with this unhappy history, what can the Carter Administration do now? The first essential is to have a coherent energy program enacted, and quickly. To that end, the President should make whatever reasonable compromises are necessary to get his energy bill through Congress, even in truncated form (the bill has been in Congress eleven months). He should also let it be known that he is seriously considering supplemental measures — slapping a stiff tariff on imported oil, for example, if consumption does not come down. The damage done by dawdling on energy can hardly be overstated. Asks Chief Economist Hans Mast, of Switzerland's Credit Suisse Bank: " What are we to think of a President with a parliamentary majority who cannot get his energy program through Congress?"