The Clinton Administration's inactivity in the face of the dollar's recent plunge reflects not so much uncertainty over how to fight back as an acknowledgment that it no longer has any effective weapons in its arsenal.
Not many years ago, when the hidden hand of currency speculators caused the dollar's value to flutter, the Treasury Department could move with relative ease to steady the markets and return the U.S. currency to what was considered its proper place in the pantheon of global monies.
All it took was a short, seemingly bland government statement expressing confidence in the dollar or limited purchases of dollars in the international money markets.
How the world has changed.
The dollar's latest downward spiral--which was interrupted Wednesday only after a decline of about 10% against the German mark and the Japanese yen since the first of the year--vividly demonstrates the limited influence of the United States, or any other government, in the global currency game.
The Clinton Administration has appeared to be sitting on the sidelines because the actions that would have worked in the past are now either obsolete or unsafe. All of the various options, said a source with long experience in the international marketplace and familiarity with the pressures facing the Administration, are "fraught with dilemmas."
With roughly $1 trillion in currencies changing hands every day at the touch of a few computer buttons, no country--not even the United States--can move the markets. All the central banks in the world do not have enough available money to make a lasting difference. No longer can the likes of the United States, Germany and Japan stop a monetary whirlwind by stepping in and buying or selling dollars.
Another strategy--encouraging overseas investors to buy dollars with their marks, yen or francs--still works sometimes. But at the moment, U.S. officials consider it too risky.
And one of the old standbys--raising interest rates to attract international investments--has been ruled out as too likely to throw the U.S. economy into a tailspin. Is it worth risking the nation's economic recovery by opting for an eighth Federal Reserve Board rate increase in little more than a year?
The consensus has been no, and Fed Chairman Alan Greenspan did nothing to dispel that in his congressional testimony Wednesday. (The dollar did rebound, though, after traders and investors apparently interpreted Greenspan's remarks as a sign that Washington may not want to tolerate the slide much longer.)
Washington is not the only government to find itself impotent in the face of the currency movements that have swept all corners of the globe. In Europe, where the German mark has been racking up huge gains against the currencies of several other nations, governments responded with no hint of panic, no drastic corrective measures and few public comments of any kind.
The French, Danish and Belgian central banks raised interest rates marginally to keep their currencies abreast of the surging mark. The Bundesbank, Germany's central bank, issued a brief statement implying that the crisis is all a misunderstanding and that if governments would do a better job of presenting their anti-inflationary policies, none of this would have happened.
More tellingly, a routine meeting of the European Union's monetary committee, which sets the relative values of some of the currencies of the EU's 15 member nations, was canceled. The reason, according to one official: "to avoid any possible misinterpretations of the outcome."
"In this kind of atmosphere, statements of any kind can backfire," noted one monetary committee official who declined to be quoted by name.
In Washington's view, no official statement trying to "talk" the crisis away could stand up to the gale-force winds buffeting the dollar in recent days.
Ultimately, the dollar's value will be determined by traders, according to such factors as the huge U.S. trade deficit, the conviction that the United States is still not tackling its budget deficit, and more attractive interest rates in Germany.
Nor is a weak dollar an unmitigated disaster for the United States.
On the negative side, it is true, it does drive up the cost of foreign goods purchased in this country. That in turn allows domestic producers to boost their prices. The ultimate consequence is a declining standard of living as Americans find themselves able to buy less in the global marketplace.
But the flip side is that U.S. goods sold overseas are suddenly cheaper when purchased in foreign currencies. That helps American manufacturers fight with European and Japanese competitors in international markets.
Whatever the consequences, Americans will have to get used to them. There is little they can do in the short term to steer the dollar one way or the other.
As author and editor Michael Lewis wrote in the current edition of the journal Foreign Affairs, "What has occurred in the markets is a diffusion of power to the point where power, in any meaningful sense, hardly exists."
Times staff writer Tyler Marshall in Brussels contributed to this report.