With the Federal Reserve chairman, Ben Bernanke, planning to maintain low interest rates in an effort to keep the economy out of recession, there is no end in sight for the dollar’s record slide, at least for the remainder of the year.

In congressional testimony before the Joint Economic Committee yesterday, he suggested that growth will be “sluggish” in the first quarter of 2008 and, notwithstanding the risk to inflation, he gave no hint that interest rates will be raised in the short term.

The advantage a cheap dollar provides for American exporters, however, has brought stern warnings from the Chinese, who say they will start to move their reserves out of dollars into harder currencies.

Even President Bush’s new ally, President Sarkozy, bluntly told Congress that the continued weakness of the dollar could prompt a trade war between America and Europe, with the Europeans deliberately reducing the euro’s value to allow European exports to compete with American goods.

Both the European Central Bank, which sets the interest rate for the euro, and the Bank of England governor, who does the same for sterling, yesterday left rates as they were to deter inflation and thereby gave no relief to Mr. Bernanke, who implied that there was little prospect of raising American interest rates in the near future. The Fed chairman tried to deliver an upbeat message about the economy’s prospects to legislators, saying, “The moderate 3.9% gross domestic product growth rate of the economy in the third quarter will slow in the months ahead, amid turmoil in the housing and credit markets and rising energy prices, but “by spring, the broader resiliency of the economy” will lead “to a more reasonable growth pace.”

The weak dollar (it has fallen more than 20% on a trade-weighted basis since its peak in 2001) is helping exporters close America’s trade imbalance. America’s current-account deficit fell to 5.5% of GDP in the second quarter, from a peak of 7% at the end of 2005.

The rapid fall in the dollar’s value, which is at a 26-year low against the euro and the pound, is causing serious concern around the world, with some commentators suggesting we are seeing the beginning of the end of the dollar as a world trading currency.

In response to demands by the vice chairman of China’s parliament, Cheng Siwei, that his country sell reserves of “weak” currencies such as the dollar, the central banker, Xu Jian, said the dollar is “losing its status as a world currency” and that he would sell and invest instead in hard currencies such as the euro and the pound. Extensive sales of the dollar by the Chinese government would further drive the dollar price down and other emerging countries, such as India and Russia, may follow suit.

Mr. Bernanke shrugged off the Chinese move, telling the economic committee: “I don’t see any significant change in the broad holdings of dollars around the country — around the world. Dollars remain the dominant reserve asset and I expect that to continue to be the case.”

A more sinister warning about the implications of the dollar’s weakness was delivered in person to Congress by Mr. Sarkozy on Wednesday.

“Those who admire the nation that has built the world’s greatest economy and has never ceased trying to persuade the world of the advantages of free trade expect her to be the first to promote fair exchange rates,” he said.

The artificially undervalued Chinese yuan “is already everyone’s problem,” he said. “The dollar cannot remain solely the problem of others. If we’re not careful, monetary disarray could morph into economic war. We would all be its victims.”

Implications of the weakness of the dollar price is likely to be raised by Chancellor Merkel when she visits Mr. Bush at his ranch in Crawford, Texas, this weekend.

Mrs. Merkel is “preoccupied” by turbulence in the financial markets, the German foreign ministry’s coordinator for American relations, Karsten Voigt, told Bloomberg News yesterday. Cooperation between America and Europe on interest rates and currency values “is absolutely necessary,” he said.

The Canadian government also expressed concern about the effect of a weak dollar on world markets, and said the issue would top the agenda of next week’s G20 meetings of finance ministers and central bankers in Cape Town, South Africa.

The devaluation of the dollar is causing Middle East oil exporters, who are paid in dollars, to demand higher prices to compensate for the dollar’s loss of value. The rising price of oil and an expected hike in commodity prices may spark inflation.

Mr. Bernanke put on a brave face before Congress yesterday. “We’re going to make sure that the inflationary impact that may come from the weakening dollar is not passed into broader prices and become part of the underlying inflation rate,” he said.

Mr. Bernanke’s dilemma was expressed by the chief economist for FTN Financial in New York, Christopher Low. The Federal Reserve Board members are “pulled in two directions,” he told Reuters. “They are worried about the economy. They are worried about inflation. Bernanke is in a box and it is getting smaller.”