International currency trading is a feverish, round-the-clock business requiring strong nerves and stamina. Today--after Sunday’s announcement by the United States and its major trading partners that they are prepared to intervene in the currency markets to drive down the value of the dollar--may prove to be the most feverish day ever.
Money traders usually work for big banks or corporations. At 4 a.m., a busy trader in New York can monitor the prices of currencies at the tail end of the market in Tokyo and the opening of the markets in Europe. Currency traders do what all traders do: They try to buy low and sell high. But instead of dealing in stocks or bonds, they deal in dollars, pounds, marks and yen.
In this case, the U.S. Federal Reserve Board would sell some of its massive holdings in U.S. Treasury bills, and foreign governments holding Treasury securities would do the same.
The currency traders probably will take seriously the threat by the United States and its allies to intervene in the markets, if necessary, to make the dollar cheaper. Traders may not want to pay that day’s market price for the dollar, for fear that intervention soon might bring that price down.
If the threat of intervention proves insufficient, the United States and its industrial partners plan to sell the dollars they hold.
As sellers, the governments will try to get the best price they can on the currency markets. But the very fact that so many dollars are for sale will bring down the price.
This is not the first time that the U.S. government has tried to force down the value of its own currency. And, on at least one recent occasion, the move backfired.
In 1977, Treasury Secretary W. Michael Blumenthal told a meeting of finance ministers from the industrial nations that the United States would play an “appropriate role” in reducing the dollar’s value.
His remarks touched off a run on the dollar, which, by year’s end, had lost 20% of its value against the mark and 10% against the Swiss franc. The dollar kept declining in spurts in 1978 and through most of 1979.