Dollars and Diplomacy: A New Reality

THE sanctity of the dollar has been virtually an article of the American faith. Fewer and fewer in the land still remember the grim days of the Great Depression, when Franklin Roosevelt took the dollar off the gold standard, shocking the hard-money stalwarts in their plush club chairs around the U.S. Since then, however, Americans have grown accustomed to looking on smugly as other nations--among them proud England and mercurial France--devalued their currencies relative to the unchanging dollar. Last week the long-unthinkable finally happened: President Nixon announced that the dollar would be devalued.

The first formal declaration came at a summit meeting in the Azores with French President Georges Pompidou, long a critic of U.S. monetary policies, who argued for devaluation and an end to the 10% import surtax imposed by Nixon in August. Nixon was ready to agree. Then, at week's end, he stepped beneath the Wright brothers' 1903 biplane in Washington's Smithsonian Institution. Near by, the finance ministers of the world's ten greatest Western industrial powers had been meeting for two days to complete the latest round of negotiations begun after the U.S. set the dollar free from a fixed gold price last summer. Nixon proclaimed, with considerable overstatement, "the most significant monetary agreement in the history of the world." What had happened was important, but not quite so portentous as that: the U.S. will devalue the dollar by 8.6% (see THE ECONOMY). Most other nations in the Group of Ten will shift their own currencies about, and the temporary U.S. import surcharge will be dropped.

Of the dollar's devaluation, one might have said with Caesar: "The breaking of so great a thing should make a greater crack." In fact, the devaluation took place in relative calm; most inside the U.S. and abroad hailed it as a realistic first step toward a long overdue reorganization of a world monetary system that had not been overhauled since the Bretton Woods conference of 1944.

In a sense, the new monetary agreement is a victory for the U.S. The nation's wearying balance of payments problems should wane, and the relatively lower price of U.S. exports should make them more attractive in foreign markets.

At the same time, though, the expense of keeping U.S. military forces abroad will grow (unless offset payments from host allies also increase). The devaluation thus could diminish the U.S. role in the world in blunt military terms--and psychologically as well. Yet if the humbling of the dollar seemed to diminish American eminence, it also demonstrated that the U.S. is increasingly learning to face the inevitable and measure its power more realistically.

As it happened, the devaluation coincided with another lesson in realism and a demonstration of scaled-down American influence overseas: the end of the two-week war between India and Pakistan (see THE WORLD). The conflict, which the U.S. had been powerless to stop or seriously affect, cast a shadow over Richard Nixon's subtropical round of summitry.

There was not a great deal that the U.S. could have done to prevent the war, given the declining American influence in Asia and the passions on both sides. Still, within the room available to maneuver, the U.S. waited too long to cut off all arms aid to Pakistan and appeared clearly biased against India. As a result of the war, a vacuum has been created that the big powers will have to fill. While India will surely dominate the emerging state of Bangladesh, the Soviet Union and China are certain to look for whatever advantage they can find in a subcontinent prostrated by war, crippled by poverty and riddled with religious and ethnic hatreds. No one power will be able to move very far without being challenged by others. The U.S. will of course remain a force in South Asia, if only as a partial buffer to the ambitions of its rivals. But for the present, at least, Moscow had plainly benefited from the war.

Genuine Concern. Some of these frustrations came to a head last week on the journey back from the Azores meeting. Presidential Adviser Henry Kissinger expressed U.S. displeasure with Russia during a "deep background" briefing for the White House press pool aboard the Spirit of '76. He warned that if Moscow did not rein in New Delhi, the U.S. might have to reconsider the presidential visit to Russia next year--a trip that ranks, along with the China journey, as one of the two supersummits toward which much of the present round of preliminary summitry is directed. When the Washington Post broke the rules and revealed that Kissinger was the source of the warning (see THE PRESS), the White House softened the statement somewhat. But the concern was genuine.

Detente is indivisible in the White House world view; that is the crux of Kissinger's longstanding concept of "linkage." The Russians or the Chinese cannot be granted concessions in one part of the world while they are making --or supporting--conflict in another part. The President scarcely wants to make historic trips to Moscow and Peking amid an unraveling international order. "We would go down in history as ridiculous globe-trotters," says a high Administration official.

Tree Planting. Yet Kissinger's effort to connect the world's crisis spots could prove ineffective. The Soviets play a contrasting game. While they have signed an agreement on Berlin with the West, pushed ahead with SALT talks, and called for detente in Europe, they have steadily increased their weaponry, armed the Egyptians to the teeth, and backed India to the hilt in its war with Pakistan. As fast as the U.S. tries to link these issues, the Russians break the chain.

President Nixon, pressing on with his summit tour, would not entirely escape these nagging, momentous concerns during his meeting this week with Britain's Prime Minister Edward Heath. But with the immediate international monetary crisis well in sight of solution, Nixon could only find the Bermudian sun and ceremony relaxing. One of his duties, following the talks with Heath: to plant a tree on the grounds of Government House. It was not a bad place from which to contemplate the new dollar and the other new, still uncertain realities ahead.

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