Now the world is taunting back. Almost four decades after the U.S. tore up the monetary arrangements that governed the post-World War II international economy, the dollar's fall from grace amounts to a tectonic shift in the global hierarchy. This time, the U.S. currency is on the losing side.

After declining in five of the last six years, the weakest dollar in the era of floating currencies reflects a period of diminished U.S. political and economic hegemony. Whoever wins the White House next year will confront two unpopular choices: Accept the fall in U.S. clout and the rise of new rivals, or rein in record public and consumer debt that the rest of the world no longer wants to bankroll.

``What we're seeing is a very broad rebalancing of economic and political power in the world,'' says Jeffrey Garten, a Yale School of Business professor who was the Commerce Department's undersecretary for international trade in the Clinton administration. ``The scales are moving, and they're moving quite fast.''

The dollar blues have migrated from the halls of central banks to images of rap musicians.

In a video for the movie ``American Gangster,'' hip-hop maestro Jay-Z thumbs through a wad of 500-euro notes on a night of cruising through the concrete canyons of New York, a city where the euro isn't legal tender. The euro gained against the dollar today as European economic growth in the third quarter accelerated more than forecast.

Nixon Genesis

The latest tailspin was triggered by the ascendance of China and India, growing confidence in Europe's common currency, record American debt and trade gaps, London's challenge to New York as a financial center and a two-year housing recession in the U.S. For the first time, economists are raising the once-improbable specter that the dollar's monopoly as the world's dominant reserve currency is under threat.

Like the British pound, its predecessor as the world currency, the dollar has fallen victim to widening burdens overseas and economic stresses at home. The slippage began in 1971 when President Richard Nixon, in a stopgap move to cope with the inflationary financing of the Vietnam War, halted the exchange of dollars for gold.

Since then, currency markets have ebbed and flowed. High Federal Reserve interest rates and a flood of Japanese capital to finance Ronald Reagan's deficits bred the ``superdollar'' of the mid-1980s. The Internet-led productivity boom lured investment to the U.S. in the late 1990s. The most recent period reflects a world awash in other options.

Permanent Depreciation

``Part of the depreciation is permanent,'' says Harvard University professor Kenneth Froot, who has been a consultant to the Fed. ``There is no doubt that the dollar must sink against periphery currencies to reflect their increase in competitiveness and productivity.''

The Fed's trade-weighted major currency index bottomed at 71.11 on Nov. 7, the lowest since the era of free-floating currencies started in 1971. Against the yen and European currencies, the dollar is now worth about a third of what it was in the days of fixed rates.

One of the main U.S. exports since then has been the dollar itself, in exchange for foreign capital to finance trade deficits and a national debt of more than $9 trillion. While the current- account deficit is narrowing from last year's record $811.5 billion, the U.S. still requires $2.1 billion a day of other people's money.

`Unstable Situation'

``We're getting into a very unstable situation,'' says Richard Duncan, a partner at Blackhorse Asset Management in Singapore and author of the 2005 book ``The Dollar Crisis: Causes, Consequences, Cures.''

Such a prospect unsettles U.S. allies, and concerns are mounting that the flight from the dollar is feeding on itself and threatening a crisis of confidence that the next president will have to address.

Kuwait, freed by the U.S. from Saddam Hussein's army in 1991, unhinged its currency from the dollar in May, and pressure is building for Gulf Arab neighbors to follow suit. Qatar's prime minister, Sheikh Hamad bin Jasim bin Jaber al-Thani, complained Nov. 11 that the dollar's drop is cutting oil and gas income, leaving less to invest abroad. The United Arab Emirates may drop the dirham's peg to the dollar, analysts said.

The central bank in Iraq, a country the U.S. military has occupied since 2003, last month said it, too, wants to diversify reserves away from mostly dollars.

Korean Shipbuilders

Korea's central bank this week urged shipbuilders to issue invoices in won, the Korean currency, and take out more hedging policies to guard against a weakened dollar.

The dollar's share of global central banks' currency portfolios slid to 64.8 percent in the second quarter from 71 percent in 1999, the year the euro debuted, the International Monetary Fund says. The euro, used in 13 countries, now accounts for 25.6 percent.

``The global reserve system is fraying; it's falling apart,'' said Joseph Stiglitz, a Nobel-laureate economist at Columbia University, at a Bloomberg seminar last month in Tokyo. ``The change in mindset about the use of the dollar in reserves and the movement of the dollar out of reserves will continue to exert downward pressure.''

Economic Dry Spell

To be sure, the latest slump -- 6.6 percent against the euro since the end of August, 4.7 percent against the yen --partly reflects an economic dry spell. Credit-market turmoil led banks to cut consumer lending, bruising the U.S. economy's main engine.

``I don't think this is a lasting phenomenon, but it will come to a halt especially when America in a few months or at the start of next year gets over the financial crisis,'' says Theo Waigel, Germany's finance minister in the 1990s and an architect of the euro.

For now, the U.S. economy is a drag on the rest of the world. When the IMF last month trimmed its global growth prediction for 2008 to 4.8 percent from 5.2 percent, it blamed the U.S., whose forecast was cut to 1.9 percent from 2.8 percent.

Two Fed rate cuts, to 4.5 percent, have tilted the trading odds against the dollar in the near term. While the European Central Bank has put a planned increase in its benchmark 4 percent rate on hold, investors still see European rates going up and U.S. rates going down.

Asia Diversifies

``I wouldn't bet against the U.S. as the world's reserve currency,'' says former Treasury Secretary John Snow, now chairman of Cerberus Capital Management in New York. ``The dollar markets are so deep and so liquid and the American economy is so fundamentally advanced.''

Central banks in Asia are hedging that bet. Buoyed by the fastest growth of any major economy and putting tight limits on the appreciation of its exchange rate, China has piled up the world's biggest stash of foreign currencies, worth $1.4 trillion at the end of September.

Cash-rich governments are discovering the profit motive, adding to pressure on the dollar as they comb the world's markets for investments that pay more than the current 4.25 percent return on 10-year U.S. Treasury bonds.

Economists at Merrill Lynch & Co. estimate as much as $1.2 trillion in dollar holdings will shift to other currencies in the next five years.

A warning by Cheng Siwei, vice chairman of the National People's Congress, that China will invest in stronger currencies triggered a recent stampede out of the dollar. China doesn't have to dump dollars to depress the U.S. currency, economists at UBS AG say. Accumulating them at a slower pace will have the same effect.

G-7 Action

Ultimately, if the dollar's swoon depresses U.S. stocks or threatens global growth, Group of Seven major industrial nations may have to do more than issue communiqués.

The last concerted international maneuver to rearrange currency rates was in September 2000, when the G-7 sold dollars to prop up the then-stumbling euro in a U.S. presidential election year.

For the moment, policy makers are just talking. ECB President Jean-Claude Trichet last week called the euro's record- setting rise ``brutal.''

Treasury Secretary Henry Paulson trotted out the 1990s mantra that a ``strong dollar is in our nation's interest'' --as long as markets determine its rate. For the first time, Paulson had to rebut concerns about the dollar's supremacy as a reserve currency.

`Uphill Struggle'

``At this moment I don't think that the Americans are very disturbed,'' says former Dutch Finance Minister Gerrit Zalm, one of the euro's founding fathers. ``Until now, the developments are gradual with little effect on the stock exchange or long term capital-market rates.''

``There is a loss of confidence in both the dollar and the U.S.,'' said Riordan Roett, a professor at Johns Hopkins University in Baltimore. ``It may only reflect the widespread dismay with the Bush administration, but it is obvious that the next administration, of either party, will have a steep uphill struggle.''