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U.S. manufacturers have for quite some time been demanding that the strong dollar be corrected, and now the greenback has begun gradually depreciating against other currencies.

However, revelations that many firms may have been engaged in illicit accounting practices — significantly WorldCom Inc. — have inflicted great damage on U.S. stock prices and sent the Dow Jones industrial average downward.

This led currency market participants, including dealers and hedge funds, to shift strategy and sell dollars.

The euro has exceeded parity with the dollar for the first time since its launch in January 2000, and the yen, despite massive market intervention, has risen to levels near 115.50.

A rapid dollar fall harbors the risk of a rise in long-term interest rates, but it is also true that there is an atmosphere of willingness to listen to those who speak of the merits of a weak greenback.

The Japanese government and the Bank of Japan have not intervened to sell the yen since the Group of Eight summit in Alberta in late June, opting to maintain the position of “monitoring the currency market carefully.”

In contrast, the euro nations all support a stronger euro vis-a-vis the dollar, and are willing to accept exchange rates greater than parity as long as the euro appreciation is not too rapid.

One major factor behind the desire of the U.S. government for a weaker dollar appears to be the belief that in an economic environment where inflation is on the decline, the U.S. economy can return to self-sustained recovery if manufacturers can return to profitability.

The U.S. government apparently hopes to resurrect the American economy in stages through expansion of trade with other countries.

The U.S. may be trying to transform its economy from one structured toward internal demand based on personal spending into one that puts more weight on external demand by increasing exports.

During that process, personal spending may be suppressed in an effort to raise the savings rate, but a fall in consumption may in turn lead to another large Dow drop.

Because a structural transition is very difficult to carry out, major industrial nations may have to make commitments in various sectors to bring this plan to fruition.

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