U.S. May Push for Action to Drive Dollar Down
The United States has been quietly sounding out its major economic allies about the possibility of taking new steps to drive the value of the dollar down slightly, perhaps at a meeting of the Group of Seven finance ministers this coming weekend.
The high-level discussions still are preliminary and there has been no agreement among the allies on what--if any--steps to take, according to sources familiar with the discussions. Senior officials from all seven major industrial countries met in Paris late last week.
U.S. officials have been apprehensive that the dollar’s sharp rise in recent months--by about 15% according to some estimates--could erode the competitiveness of American manufacturers and blunt, or even reverse, further progress in reducing the U.S. trade deficit.
Steps Unclear
Central banks of the United States, West Germany and Japan have intervened heavily in the foreign exchange markets in an effort to keep the dollar stable recently but for the most part have been unsuccessful. Late last week, the dollar topped 2 West German marks.
The dollar declined slightly Monday in the face of speculation by traders that the finance ministers may take some action this weekend. But the U.S. currency still is believed to be above the upper limit of the ranges that the ministers have set for it.
The Group of Seven, as the ministers and central bankers are known, includes West Germany, Japan, Britain, France, Italy and Canada, in addition to the United States. It is the same group whose leaders attend the annual seven-nation economic summit each summer.
It was not immediately clear what steps the finance ministers would--or could--take at their meeting this weekend. There has been speculation that West Germany may raise interest rates to help bolster the mark, but so far the Bundesbank has refused to do so.
The ministers also could simply reiterate their intention to keep the dollar from rising much further and back that up with massive intervention in the exchange markets, but they would be running the risk that the action might not prove effective.
The central banks of the major industrial nations have been intervening heavily for much of this month, yet the dollar has been rising intermittently. There was criticism in the markets earlier this month that the group might be losing some of its resolve to keep the dollar firm.
The Federal Reserve Board reported last week that during the three months that ended July 31, the United States sold $11.9 billion in an effort to help keep the dollar’s value in check--a record for any 90-day period.
The meeting of the Group of Seven has been scheduled for several months. The ministers traditionally meet just before the start of the annual meetings of the International Monetary Fund and the World Bank, which this year start Sept. 25.
