Falling Dollar Competitive but Won’t Solve Problems--Volcker

Federal Reserve Board Chairman Paul A. Volcker said today he believes the plunging dollar is close to a competitive level. But he stressed it is not enough to rely only on declining currency to solve trade problems and voiced concern about the federal deficit.

Volcker, testifying to the Senate Banking Committee, said the further the dollar drops, the more risks arise. But he said its current position is “reasonably close to what should be a competitive level.”

He added that it was solely a “matter of judgment when the dollar has gone down far enough” and, under questioning from Sen. Donald W. Riegle Jr. (D-Mich.), refused to comment on how much more of a drop the currency could absorb.

However, he emphasized that relying only on the drop of the dollar to help erase the nation’s large trade imbalance “cannot be a policy by itself.”

Volcker refused to be pinned down further by Riegle’s questioning and when the senator asked if Volcker was therefore not worried about the recent quick drop of the dollar, he noted, “Oh, I always worry about it.”

The Reagan Administration has thus far allowed the market to drive the dollar down. It appears comfortable with waiting for the decline in the dollar to help cure the trade deficit.