Secretary of the Treasury W. Michael Blumenthal declared yesterday that the U.S. effort to intervene in the foreign exchange markets to halt the slide of the dollar "has worked" and has "quieted things down" in the world's major financial centers.
In an informal news conference, Blumenthal said the U.S. had achieved its "main purpose" in the action - to restore stability to the markets. He said the U.S. would "continue to work with" West Germany in supporting the dollar's value.
His statement came during a day in which the dollar slid further on the foreign exchange markets, following a shoring-up period on Tuesday.
Analysts said the slippage stemmed in part from skepticism by traders over whether the U.S. was interventing heavily enough to keep the dollar from declining further. Initial indications were that the intervention effort was relatively modest, both by the U.S. and West Germany.
Meanwhile, in Paris, Saudi Arabia's oil minister, Sheik Ahmed Yamani, suggested that his nation may urge the oil-producing nations to abandon the dollar as the basis for setting world oil prices if the decline in the currency does not end soon.
Yamani said that while the oil-producers will maintain their price freeze for the rest of this year, as they promised last month, prices may be based on several different currencies rather than just the dollar alone. Yamani said "we are suffering from the fall of the dollar."
The continued decline followed a series of actions by the U.S. and West Germany over the past few days designed to prop the dollar up. The U.S. first announced last week it would step up intervention to support the dollar - reversing its earlier.
Then, last Friday, in an unusual move, its discount rate to help push up interest ates here in the U.S. and boost confidence in the dollar. It backed that move the following Monday by pushing interest rates up in domestic money markets.
Analysts differed yesterday over what may be causing the continuing decline. The Dow-Jones News Service quoted a London-based dealer as saying the Fed simply has not satisfied the market's desire for forceful and aggressive action. "This isn't he time to be discreet," he said.
But Henry Kaufman, economist for Salomon Brothers, the New York City investment house, speculated that the Fed's recent actions had not yet pushed three-month interest rates here up sharply enough to have the kind of impact needed to stem the slide.
Kaufman said it may be several months, or longer, before the dollar is back in good health.
Final figures yesterday showed that the dollar closed slightly lower against the West German mark, falling to 2.1138 marks, down from 2.1325 yesterday. In Tokyo, the dollar slid to 241.175 yen, from 241.575 on Tuesday.
Meanwhile, Hans Apel, the West German finance minister, said the dollar's fall against the mark should not be "over-dramatized," and called for closer cooperation with the U.S. to help overcome the instability in the markets.