THE United States dollar has been declining and Washington is yawning. Central banks of several industrial countries were supporting the dollar on foreign exchange markets last week and this week. But there was no old-fashioned ``dollar crisis,'' no sounding of the alarm. Despite the war in the Gulf, political turmoil in the Soviet Union, and dramatic change in eastern Europe, the foreign-exchange markets have been relatively quiet in the past year compared to periods in the 1970s and 1980s.
``The dollar is doing the right thing,'' says Martin Feldstein, a Harvard University economist. ``That is what you would expect from an easier monetary policy.''
Because the Federal Reserve System has been pushing money into the banking system in recent weeks, interest rates have fallen in the US. The Fed also lowered the discount rate, the interest rate it charges on loans to commercial banks, on Feb. 1.
Contrariwise, a day earlier, the Bundesbank pushed up German interest rates to slow a booming economy.
So investors and speculators, figuring they could get a better return on investments in Germany than in the US, have been buying deutschemarks and dumping dollars.
``Governments have placed domestic objectives ahead of foreign exchange objectives,'' observes Peter Kenen, a Princeton University economist specializing in international economics.
The Fed's action is intended to counter the recession. The Bundesbank's goal is to avoid more inflation and provide sufficient capital for modernizing and subsidizing the economy of what was East Germany. Unification has resulted in a large and growing German budget deficit that must be financed.
Some experts liken Germany's economic situation today - a loose budget policy and a tight monetary policy - to that in the US in the early 1980s. The Reagan administration cut taxes sharply, while the Fed held firm on monetary policy to restrain inflation. One result was a climb in the value of the dollar between 1980 and February 1985 that was the largest in history for a major currency. Similarly now, the German mark has been rising in value.
In the fall of 1985, financial officials of the major industrial democracies met in Paris and agreed to force the dollar lower and keep it within a specified, though secret, range against the mark and the yen on the foreign-exchange markets.
That agreement, says Professor Kenan, has ``pretty substantially eroded.'' He figures the recent intervention by central bankers in the foreign-exchange markets was not so much to set specific exchange rates for the ``Group of Three'' currencies as to discourage unsettling, rapid changes in the rates.
Robert Solomon, a Brookings Institution economist, says another motive for intervention was to relieve stress within the European Monetary System (EMS). France and Italy, which have slowing economies, were decidedly unhappy with the German decision to boost interest rates. It meant they must also boost domestic interest rates and weaken their economies further, or risk a devaluation of their currencies within the EMS.
Last week the intervening central banks of the US, Canada, Germany, Britain, Italy, France, and nine other European nations bought an estimated $1.5 billion in dollars to prop up its price. Japan did not join in the enterprise. This week, intervention managed to strengthen the dollar a little on Tuesday. But so far this year the dollar has declined about 3.5 percent against the mark and 5 percent against the yen.
Kevin Logan, chief New York economist for Swiss Bank Corporation, says the dollar will remain under pressure as long as the Fed continues its moves to revive the economy by lowering interest rates. One benefit from the weak dollar, which makes exports cheaper and imports more expensive, could be a reduced US trade deficit. Mr. Logan says that the merchandise deficit will fall to between $85 billion and $90 billion this year, down from around $103 billion in 1990 and $109.4 billion in 1989.
Dr. Feldstein, chairman of the Council of Economic Advisers during President Reagan's first term, says the dollar must fall further to balance US international payments.