Dethroning the Dollar

Like the children of Hamelin chasing the Pied Piper, investors last week continued rushing to put their paper money into hard goods. Gold scaled yet another peak on the London exchange: $397 per oz., almost double a year ago. Prices soared for platinum and silver, and even copper that was 81-c- per Ib. two months ago sold for $1.05 per Ib.

The rush to tangibles, including art and antiques as well as metals, reflects the spreading distrust of nearly all currencies after a decade of high inflation. People would rather bank what wealth they have in commodities and collectibles with intrinsic value that they can see and feel.

The dollar was again the primary victim of this classic inflationary flight into goods. West Germany raised the value of its muscular mark by 2% against other European currencies to discourage speculators from dumping dollars to buy marks. But all it took was some news about the U.S. trade deficit to send the buck plunging sharply anyway. Most members of TIME's Board of Economists expect the dollar to fall further. So long as inflation in the U.S. remains steeper than in other leading industrial countries, says Economist Otto Eckstein, "the dollar is indefensible."

At this week's annual meeting in Belgrade of the finance ministers and central bankers of the 138-country International Monetary Fund, another step may be taken to dethrone the dollar as the world's chief reserve currency, and replace it with a collection of monies that will give more economic and geopolitical power to hard-currency nations, including West Germany and Japan. In an attempt to remove from the money markets some of the excess dollars that provide cannon fodder for speculators, the IMF would replace as much as $40 billion with its own bonds. Now there are some $225 billion in dollars in foreign central bank vaults and $500 billion more in private hands outside the U.S. For a generation the dollar's dominant currency role reflected U.S. global might; its decline mirrors America's shrunken role.

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