U.S. and Allies Agree to Retain Level of Dollar
Finance ministers of the United States and its major economic allies agreed Saturday that the dollar is at about the right level in the foreign exchange markets, and they vowed to try to act jointly to keep exchange rates stable.
The ministers, along with the central bankers of each country, also made clear they have no plans to push interest rates higher. They said that while the recent inflation problem will continue to require “vigilance,” there currently “is little evidence of a general inflationary threat.”
The pronouncements, contained in a communique issued after a meeting of the Group of Seven, as the committee of top policy-makers is called, was designed to signal a continuation of present economic policies in each country in hopes of prolonging the current favorable economic conditions in the industrial world.
The session was the first for Treasury Secretary Nicholas F. Brady, who was sworn in last week to replace James A. Baker III. Baker resigned to head Vice President George Bush’s presidential campaign.
Brady did relatively little at the meeting beyond assuring U.S. allies that American policies will remain unchanged. Besides the United States, the group includes Japan, West Germany, Britain, France, Italy and Canada.
The finance ministers’ session marked a prelude to a weeklong meeting that begins today of the 151-country International Monetary Fund and the World Bank, which respectively govern the world monetary system and provide loans to Third World governments. The two Washington-based organizations meet overseas once out of every three years.
This year’s meetings are being held under extraordinarily heavy security amid threats of massive demonstrations and violence by European labor unions, church groups and leftists, who believe that the two organizations are pursuing policies that hurt poor countries and harm the environment.
The violence already has begun. Earlier this week, a shotgun-wielding leftist attempted to assassinate a senior West German Finance Ministry official in Bonn, and another West German diplomat was beaten in Hamburg. On Saturday, leftist groups threw a bomb at a bank here in West Berlin. Tens of thousands of demonstrators are expected to march here today.
The decision affecting the dollar is an important one, since the value of the U.S. currency--and the prospect of continued stability in the world exchange-rate system--have a major effect on America’s ability to reduce its massive trade deficit.
The dollar has been relatively stable since last December, when the finance ministers established the current set of informal ranges within which they have allowed it to fluctuate. In recent weeks, however, the dollar has risen slightly against the West German mark.
The finance ministers reaffirmed those targets in April and at the seven-nation economic summit in Toronto in June. The dollar’s rise against the mark had pushed it through the top of those ranges. Saturday’s statement appeared to signal that the ministers want to see the U.S. currency edge down slightly in relation to the mark, but the overall targets that prevailed before will remain intact.
On a related issue, the ministers also said they plan to continue the case-by-case strategy they have been using to deal with the global debt problem, rather than provide massive debt relief to developing countries, as some Third World officials have suggested. The move is in line with Reagan Administration views on the question.
There was one new wrinkle in the ministers’ statement on the dollar this time: The ministers changed the wording of their pronouncement about the dollar, dropping more specific language in earlier communiques for a more general pledge to “maintain exchange-rate stability.”
Nevertheless, a senior U.S. official said the communique was intended as “a clear statement of the desirability of the status quo” with respect to exchange rates.
Karl Otto Poehl, West Germany’s central bank president, echoed that sentiment, telling reporters that “current levels seem right because the markets are calm.”
The finance ministers’ optimistic pronouncements also disputed warnings by the IMF that the recent improvement in narrowing the U.S. trade deficit would stop unless the industrial nations took further steps to put their economies in order.
Michael Wilson, Canada’s finance minister, said later that the ministers didn’t share the IMF’s pessimism over the trade outlook. Several other ministers expressed similar views.