New York banker Robert V. Roosa yesterday lashed out at the U.S. Government's "benign neglect" of the dollar, saying U.S. indifference to the decline of the dollar "has allowed a kind of crap-shooting mentality to develop around the markets."
He said that the dollar is too important to the world economy for its exchange rate to be "left to chance," and proposed that the United States, along with West Germany and Japan, establish "target zones" for the dollar, D-mark and yen that would be supported by exchange market intervention of the three countries.
Roosa said sarcastically that the dollar keeps "sinking" except against neighboring Canada and Mexico.
"In my view," he said, "the open profession of indifference by the United States has, despite the best efforts of other countries to introduce some steadying influence, often left the markets in a kind of limbo."
The resulting gyrations, he said, damage business confidence, affect earnings, and stifle what should be normal international capital flows.
His testimony came in the course of a regular banking committee hearing on U.S. monetary policy.
Roosa, a partner in Brown Brothers Harriman of New York, private bankers, and a former Treasury official in the Kennedy Administration, said that a heavy U.S. trade deficit - a major factor in the recent weakness of the dollar - will continue for years.
If the trade and current account deficits are financed by putting more liquid dollars in foreign hands, he said, that "raises a range of serious questions for the financial viability of the world economy."
He argued that none of three classic ways to neutralize the huge U.S. trade deficit - exchange rate changes, expansion of domestic demand in other countries, or foreign investment here - is likely to cure the imbalance, estimated at $28 to $30 billion for this year and again in 1978.
He then argued that the United States ought to abandon the "fetish" of not intervening in day-to-day market operations to moderate fluctuations in the dollar.
"Money just doesn't manage itself in international or domestic markets," he said. "It must not be allowed to drift, and I think the best way would be to establish closer relations between the D-mark, the yen, and the dollar. With target zones among those three, we would have the base for a centralizing influence."
He said that his call for direction of exchange rate movements than was agreed upon by the International Monetary Fund in Jamica in 1976 would not involve a return to fixed exchange rates. The world can no longer accept the "rigidities" of the Bretton Woods system, he admitted.
But to bring "a degree of systematic order" to the floating exchange rate system, he argued, a closer working arrangement among the dollar, yen, is necessary.
The objective would be to find a "relatively steady arrangement" among the three currencies, with intervention defending the agreed-upon zone "until it becomes clear that one or the other must be allowed to move outside the accepted zone, somewhat in the pattern that has already been pioneered by several European countries.
By implication, Roosa was being critical of Treasury Secretary W. Michael Blumenthal, who earlier this year said he would not object if the dollar depreciated further against strong currencies such as the D-mark and the yen.
But Blumenthal, in the face of sharp criticism from Europeans, has lately stressed the importance of a strong dollar.
Since the first of the year, the Japanese yen has appreciated about 15 per cent against the dollar. Across the spectrum of all trade, however, the dollar is down only fractionally on the average.