The free (freely?) falling American dollar

It was a gathering that was fascinating in one way: it was international.  Two American citizens, two Canadian citizens, two non-citizens but (legal, of course) immigrants from India, and one visiting Indian Indian citizen.
Well, international as it was, it was also a gathering of people of Indian stock :)

During the casual conversation that included a whole lot of laughing and general merriment, we noted that the American dollar is not all that mighty when we travel in India.  "A plate of idli costs fifty rupees" said one--about a dollar.  As poor as India is, it appears that the US dollar has become considerably poorer over the years.  In the middle of all this, my brother called from Australia and is excited about news from down under that by 2012 the Australian dollar might fetch up to 1.2 US dollars.

What the heck is going on, eh!  I thought that the official US policy has always been in favor of a strong dollar, but it has been far from that.  Nothing seems to be working!

The debate over currency valuation is pivotal. World leaders broadly agree that for the global economy to be more stable, imbalances between creditor countries like China and Germany and debtor countries like the United States and Britain have to be fixed. 

Hey, tell us something new that we haven't experienced!

the United States has lost some of the standing it needs to shape global policy. Not only is Wall Street viewed by many as having initiated the world financial crisis, but also, a number of countries fear that policies by the Federal Reserve are pushing down the dollar’s value — the same kind of currency weakening for which the Obama administration has criticized China.

“Other countries are no longer willing to buy into the idea that the U.S. knows best on economic policy, while at the same time the emerging markets have become increasingly influential and independent,” said Kenneth S. Rogoff of Harvard, a former chief economist at the I.M.F.

Great.  Thanks!  If we trace back the currency issues from the Breton Woods agreements,

Back in 1944, the Americans did not envisage that they would one day be the world's biggest debtor nation. For years they have been able to stave off the consequences of running a large trade deficit by printing more dollars. That's something you can get away with if you are the world's premier reserve currency, but at a price. The imbalances grew bigger and bigger until they threatened the stability of the world economy.

The Americans are now able to see the downside of the system they themselves created: what do you do when a creditor nation tells you to push off, as the Chinese have done in the past week after pressure from Washington to revalue the yuan? The answer, as Tim Geithner, the US treasury secretary, has discovered, is that you plead and you cajole and you threaten, but you have little traction unless you are prepared to "go nuclear" and impose trade barriers.

So?  What might happen then?

the Americans are probably closer to pushing the nuclear button than they were before the weekend. The jobs figures highlighted the fragility of the economy, while the IMF meeting highlighted the impotence of the multilateral system. If, as seems apparent, the world can only pull together in a crisis, America and China between them may be about to provide one.

That means that after all the distractions of 9/11, Afghanistan, Iraq, etc., the US and China once again become serious adversaries, like how they were in April 2001?