Stepping on the dollar
INTERNATIONAL economic coordination can go a long way. Thanks to some vigorous central-bank intervention yesterday by the British, West Germans, Swiss, and Japanese - who all bought dollars - the sharp downward spiral of the greenback was momentarily arrested, at least as of this writing, following turbulence in global stock markets Monday. The stock losses coming off the weekend reflected the continuing downward spiral in the dollar on world exchange markets. It would surely be premature to argue that this latest intervention will be enough to stabilize the dollar. Some additional slippage can be expected, given the turbulence and confusion now swirling throughout the world financial community. Underlying anxiety by investors appears to be widespread. And yet the latest central bank intervention - as well as promised new efforts by the West Germans to stimulate their own domestic economy - underscores the need for coordinated international action to stabilize the dollar, and, in the process, steady the global economy.
It is time to begin preparations for a meeting of the major industrial trading nations, the so-called Group of Seven, or G-7. Back in February 1987, G-7 members - the United States, Britain, West Germany, Japan, France, Italy, and Canada - signed the so-called Louvre accord, which sought to stabilize currency rates. For all its faults, the agreement did buy time for the world economy, given such unresolved challenges as the huge US budget deficit, significant trade imbalances between Europe, the US, and Japan, and third-world debt. But the Louvre accord has become slightly unglued since ``Black Monday,'' the sharp stock market plunge of Oct. 19.
G-7 members should meet as soon as possible to hammer out a new joint accord that, at the very least, prevents any further free fall by the dollar.
Has the Reagan administration in fact been once again abetting, or at least welcoming, the dollar fall? Some White House insiders have been alleging just that. If so, such a high-risk policy would be unwise. How could the US really be benefited by a further devaluation of the dollar? The ability of US exporters to regain lost market share will be determined more by quality of product and marketing expertise than price. Tokyo has proved that. And the experience of other nations that have frequently resorted to currency devaluations to cure deep-seated economic problems indicate that devaluation invariably creates more problems than it resolves, including eventual social disorder, as groups within society jockey to better their own economic conditions at the expense of others. The low dollar has now become counterproductive, igniting new fears of inflation, roiling global markets, and endangering the willingness of overseas investors to continue to bankroll US budget deficits.
The Reagan administration, ironically - and to its credit - has taken the lead in promoting a new round of tariff reductions under the auspices of the General Agreement on Tariffs and Trade. This week marks GATT's 40th anniversary. For the White House to seek international action on ending trade barriers while at the same time going it alone on the crucial currency front - risking global recession in the process - is hardly a consistent economic policy.
The index of leading economic indicators slipped 0.2 percent in October, pushed down by the October market decline. Some economists believe November may be down somewhat, too.
But the indicators need not presage recession, provided the Western economic partners work together, as they should do by convening a new G-7 meeting. This working together, it need hardly be added, must include the White House, which should restrain any inclination to seek a quick fix for the American manufacturing sector by tolerating, or encouraging, more slippage of the US dollar.
