The declining fortunes of the dollar are becoming a matter of global concern. America is earning less from exports than she needs to pay for her imports. The US trade and budget deficits are increasing. The dollar has been falling while Euro, Yen and Rupee have been rising.

There is a good possibility that this may lead to dumping of dollars in a big way and bring the US economy down. Many developing countries like China are dependent upon the US markets.

The US economy would pull down these countries along with it. Thus it is being said that the whole world, in its own self-interest, should rescue the dollar by continuing to buy that currency.

In their article "Fall of the Dollar", James A. Paul and Marianna Quenemoen of Global Policy Forum say, "The dollar's fall will reduce the huge international subsidy enjoyed for two decades by the US economy, ultimately shrinking the standard of living of US citizens.

" At the same time, falling US demand for imports will likely harm economies everywhere else and set off further currency devaluations, pressures and financial instabilities - all with dangerous consequences."

In the same tone Elizabeth Becker and Edmund Andrews argue in a New York Times article that "large budget deficits pose 'significant risks" not just for the United States but for the rest of the world."

These commentators appear to say that the developing countries would stand to lose if the US economy collapses. But that is only in the short run. A businessman may indeed feel comfortable by selling goods to a buyer against dubious promissory notes.

But that comfort will disappear when the promissory notes remain unpaid. America's economy today is like such a buyer. It does not have the money to pay for its imports.

She is dependent on other countries buying her T-Bills so that she can continue to import their goods. The US is like a buyer asking for more supplies against a cheque which should not be presented for payment.

It would obviously be better to sell the goods to another buyer at lower price but one whose cheque is good. But if the businessman stops selling to the dubious buyer and does not find another buyer then he is in trouble. It follows that rest of the world should develop other markets instead of continuing to buy US T-Bills of dubious value and exporting to the US.

The problem is that other countries do not have an America-like appetite of making huge borrowings to import and consume goods from across the world. There is only one buyer in the market who is willing to buy only against borrowings from the exporting country. The US buys Chinese goods with money borrowed from China.

But if China has to sell its cloth to the US with its own money then why should it not empower its domestic buyers to buy that same cloth against a similar borrowing? The government of China could lend money to its people and they could buy that same cloth which is presently being exported to the US against the dollar-denominated T-Bills of dubious value.

This 'lending' to its own people could be done by giving out unemployment compensation or by making greater investment in food-for-work type schemes that also create productive assets.

Such an approach would have two consequences. One, non-purchase of US dollar by the developing countries will lead to that currency falling rapidly and the US economy will collapse.

Two, the standard of living of the people of China will rise by the consumption of more cloth. The Chinese economy will remain unaffected by the US collapse because a domestic market will replace that being provided by the US presently.

China cannot get full payment for its exports to the US. The money that it gives to the US in buying its T-Bills is a 'loss' to the Chinese economy because those T-Bills cannot be sold.

It would incur a similar loss in giving out cheques for unemployment compensation to her people. In both cases the payment for the goods sold is not received. The difference is that presently the US consumer is consuming goods against T-Bills of dubious value; the Chinese consumer would do the same in the alternate dispensation.

Buying US T-Bills and propping up the US economy is not the only option before us. However, this is promoted because it leads to the maintenance of the US hegemony. Jeff Faux of the Economic Policy Institute explains, "US influence in the world is bound to weaken as the dollar shrinks.

Our expensive currency has allowed us to pay for foreign bases and other overseas costs of the war on terrorism on the cheap. Our appetite for low-priced imports, meanwhile, has enabled US diplomats to win support abroad for American policies by offering or withholding access to the US consumer market. A lower-priced dollar will make being the world's policeman more expensive."

In the same tone Paul and Quenemoen of Global Policy Forum say, "The US can scarcely prevail as the global superpower if its economic fundamentals are weak.

Britain's two hundred years of global supremacy were based on a strong currency, a large trade surplus and growing foreign investments. Trade decline in the late nineteenth and early twentieth century gave a clear sign that Britain's empire was on the wane. Today's trade and payments deficits, and the falling dollar, may point in very same direction for the global order based on US dominance."

The real concern of these economists is that US hegemony will be broken with the fall of the dollar. Thus a false propaganda is being made that it is necessary for the rest of the world to buy dollars for stability and growth of the world economy. The truth is that the collapse of the dollar and the US economy can lead to better standards of life for our people and also creation of a multipolar world.

bharatj@nda.vsnl.net.in.