Finance Ministers Take a Fresh Look at Dollar’s Value

Finance ministers and central bankers from the five major industrial nations of the non-Communist world convened here Saturday in an uncomfortable glare of publicity to review their efforts to reduce the international value of the dollar and explore a possible move to reduce interest rates.

Treasury Secretary James A. Baker III, Federal Reserve Board Chairman Paul A. Volcker and their counterparts from Britain, France, West Germany and Japan had hoped that their weekend meeting would help re-establish the low profile that so-called Group of Five sessions once enjoyed.

Sent Gold Soaring

But remarks last week in Washington by West German Economics Minister Martin Bangemann that the United States would seek a coordinated reduction of interest rates at this weekend’s meeting focused immediate attention on the session, sent the price of gold soaring and spread nervousness and confusion on global currency exchanges.

Since then, officials from participating nations have gone out of their way to dampen expectations that the ministers will agree in London to a major new initiative on interest rates, one similar to their important decision in New York last September to force down the value of the dollar.

Unlike most earlier Group of Five meetings, the New York session concluded with a detailed statement and widespread publicity, which the finance ministers believed was necessary to alert world money markets about their determination.

“A repeat of New York is not anticipated,” West German Finance Minister Gerhard Stoltenberg said at a Bonn news conference Friday. Stoltenberg, not Bangemann, is representing West Germany at the meeting.

Whatever the ministers decide here in their two days of formal and informal talks, indications are that there will be no immediate announcement. Most of them have arrived with only one or two aides; there are no provisions for a news conference, and British Treasury officials have called the meeting “strictly routine.” They say that only a brief statement will be issued later today.

Delegates were tight-lipped Saturday night after a dinner given by Nigel Lawson, Britain’s chancellor of the exchequer. They emerged smiling from the three-hour-long session but would not say if anything had been accomplished.

Still, speculation persisted. Although Baker issued a terse statement saying he had thought that last week’s meeting with Bangemann was private, and Bangemann himself belatedly denied making his statement, others confirmed that a move to coordinate interest rates between the five countries was an agenda item.

Before leaving Tokyo, Japanese Finance Minister Noboru Takeshita expressed the hope that agreement could be reached on the need to cut interest rates.

His French counterpart, Pierre Beregovoy, also spoke in favor of such a move. “A cut in interest rates would be good for everyone, including the developing countries,” Beregovoy said.

A drop in interest rates among the leading industrial nations would help stimulate world trade and also ease the burden of heavily indebted Third World nations, who collectively owe an estimated $800 billion.

West Germany and the United States are reportedly concerned that any immediate reduction in interest rates could set off a new round of inflation.

The five nations’ financial leaders are also expected to review what appears to have been a successful decline of the dollar since their coordinated efforts to reduce its value began in September.

Since then, the dollar has declined 16% against the Japanese yen and 14% against the West German mark, the two strongest currencies among the five countries. Against the British pound and the French franc, two somewhat weaker currencies that figure heavily in the international tourist trade, the leavening of the dollar has been more pronounced. The dollar is roughly 30% weaker against the franc and down almost 40% against the pound during the same period.

Orderly Decline

Still, the decline has come in an orderly fashion, rather than the dollar’s crashing as some had feared. After hectic trading during the first few sessions after the September meetings, the dollar has fallen slowly and generally steadily. Although West European monetary experts believe that a further decline of at least 10% is necessary, it is unlikely that the ministers will undertake any new initiatives here to bring it down in the short term.

The cheaper dollar helps reduce the trade gap by making U.S. exports more competitive on global markets and imports more expensive to sell in the United States, but it also increases the prices of imported raw materials, a development that could bring new inflationary pressures that the Reagan Administration would like to avoid.

The dollar’s decline has also boosted the popularity of the West German mark, and further adjustments would almost certainly bring excessive pressures on the fixed relationships between the mark and the other currencies of the European Monetary System.