The dollar's day drags slowly to an end

The remission of the patient lasted all of one day. The dollar is sick - too sick to respond more than briefly to the Bundesbank's patent medicine. Too sick to respond to the Bank of Japan's gesture towards an easing in monetary policy.

What is clear from this week's turmoil in the currency markets is that the dollar's weakness goes well beyond the capacity of central bankers to overcome - even if they wanted to. The Bundesbank did more than anyone had expected - and yet it proved to no avail. The Bank of Japan, for its part, eased monetary policy - to no effect.

The message from the markets is that more fundamental treatment is necessary if the dollar is to regain health. The rake's progress that has turned the US within 10 years into the world's biggest external debtor has to end. You cannot indefinitely pile up balance of payments deficits without paying the price of endemic currency weakness.

But the markets may be sending an even stronger signal. De facto, they are calling for a fundamental reassessment of the dollar's role in the world. Despite the diminution in the US global economic weight in the world, the dollar remains primus inter pares. Fine if you keep your economic house in good order. But that's not how it seems to international investors, above all the Japanese.

The creation of any new international economic order is always marked by painful birthpangs. The transition from the world where sterling's writ ruled to one where the dollar ruled supreme took many years and was punctuated by two wars. The transition from a world where the dollar rules supreme is also proving protracted. But the longer the greenback's sickness persists, the more it seems clear that this is the nature of the disease. The difficulty for every other country - with hard or weak currencies - is that the patient cares less than those being infected.