U.S. Acts to Slow Soaring Dollar in World Markets : Effect hard to Measure, Baker Says

WASHINGTON — Treasury Secretary James A. Baker III disclosed today that the United States has intervened on world currency markets in the last few weeks in an effort to slow down the rise of the dollar.

But Baker stopped short of saying the dollar should be devalued.

Baker also said the government is sticking to its basic policy of intervening in currency markets only to maintain order.

His comments came amid a continued clamor among U.S. farmers and exporters and foreign officials for action to curb the skyrocketing dollar.

For example, John Gummer, chairman of Britain’s ruling Conservative Party, said in London today that the United States is unfairly weakening its West European allies by depressing their currencies with the strong dollar.

Inflation Exported

“America is importing the savings of the rest of the world and exporting the inflation,” said Gummer, a close aide of Prime Minister Margaret Thatcher.

The dollar fell sharply in early trading today in a round of profit-taking that followed nine straight days in which the American currency set records. Over the last five years, the value of the dollar is up about 80%.

Before Baker took office, the top finance officials from the United States, Japan, West Germany, France and Britain met in Washington on Jan. 17 and declared they were “willing to undertake coordinated intervention” to maintain order on currency markets.

Baker told reporters that U.S. intervention since the January meeting represents a moderation of the government’s attitude toward such action.

Basic Policy Unchanged

“We have intervened and we have in fact done so since I’ve been here,” Baker said, adding that the basic policy remains that such moves should be made only to maintain order on world markets.

Meanwhile, an Administration official who commented on condition that his name not be used said, “There’s been some intervention in cases not limited to disorderly markets since that (Jan. 17) meeting.”

When finance officials speak of “intervention,” they mean a government buying or selling a currency on foreign exchange markets to try to increase or lower the value of that currency.

While disclosing the actions, Baker indicated that the marketplace should set the value of currencies. He added that governments and central banks can have only a limited impact on the value of a currency.

Difficult to Have Effect

“If in fact you have $100 billion (worth) of dollar transactions out there every day” and “you consider what we have available to us,” then “it’s very difficult to have (an) effect on a normal market rise of a currency,” Baker said.

“You can knock it down a notch, you can slow it down a little bit, but it’s very difficult to (have an) effect in the long term,” he said.

Baker said that after the recent interventions, “the dollar continued to rise, notwithstanding those interventions. What I can’t do is sit here today and tell you how much more it would have risen if we hadn’t intervened.”

However, Baker sidestepped questions about whether the dollar is overvalued.

“I will not say that it’s overvalued because the market sets its value,” Baker said. But he added, “it is very strong and to say that it’s too strong puts more emphasis on the detrimental aspects of its strength than on the beneficial. There are detrimental aspects and there are beneficial aspects to the strength of the dollar.”

He said a strong dollar has kept inflation down and generated jobs, but on the other hand it has worsened the U.S. trade deficit, which hit $123 billion last year.