The Federal Reserve Bank of New York reported yesterday that U.S. authorities intervened at a record $1.5 billion level in foreign exchange markets for the three months ended Jan. 31 to counter what one top Fed official called "the most disorderly markets" he could recall.
Of the foreign currencies sold during this period, $1.48 billion nearly the entire amount, consisted of West German marks. More than half, or about $815 million of marks was sold after Jan. 4 when the United states moved to "a more open and forceful approach to the market," according to the Fed.
It was on Jan. 4 that the Federal Reserve and the U.S. Treasury jointly announced they were activating a $20 billion currency swap net work to "check speculation and reestablish order" in the exchange markets where traders had been pounding since last summer.
Despite the heavy intervention, the dollar remained under considerable pressure yesterday, and below Jan. 31 levels.
Only $18.9 million of Swiss francs were sold in the November January quarter by U.S. authorities and no Japanese yen, according to the New York Fed's semiannual report on Treasury and Federal Reserve foreign exchange operations released yesterday.
The $1.5 billion of intervention nearly doubled the previous quarterly record for currency sales by U.S. authorities. That occured in the February April 1975 period when the Federal Reserve sold $793.2 million worth of marks, Swiss francs, Belgian francs and Dutch guilders.
However, the volume of U.S. intervention was still small compared with the total level of central bank intervention during the most recent quarter.
Overall, gross market intervention by all major central banks in the November-January quarter totaled $29 billion, the New York Fed estimated. That compares with $30 billion in the August-October quarter.
The November-January market activities were detailed at a press conference by Alan Holmes, executive vice president of the New York Fed, and Scott ardee, vice president and deputy manager for foreign operations.
The New York Reserve Bank carries out foreign exchange operations for the Federal Reserve system and the Treasury.
The Fed officials took pains to counter the charge that the United States had intervened insufficiently in the recent period to defend the value of the dollar and keep succency markets orderly. They also reiterated that the government's intervention policy was not designed to peg the value of the dollar to a specific relationship to other currencies but memery to keep the foreign exchange markets functioning relatively smoothly.
"I want to emphasize we are not trying to push up to an official rate or hold to an official level," Pardee said. "We can't do that. That's not in effect the policy."
"Central banks are there to deal with disorderly markets," he added, "but we're not standing by at any particular level to bail out a person who's made a mistake."
Asked what the Fed considers a disorderly market requiring intervention, the officials gave several examples: larger movements in exchange rates on thin volume, a widening of bid and offer spreads by dealers and the complete absence of buy and sell bids at any price.
Pardee, citing "the most disorderly arkets I can recall," said there recently were "extended periods in which there were no bids and no offers," causing the Fed to intervene to counteract such overwhelmingly one-sided markets.
"There's a bottom, but we're not neccessarily going to provide it," the Fed vice president said of the dollar's decline. "We want to get enough people in the market disagreeing so that one fellow is ready to sell and another fellow is ready to buy without the central bank intervening."
Holmes declined to specify how much he thought the dollar was undervalued in relation to other currencies.
To finance most of the intervention for the quarter ended in January, the Federal Reserve drew $1.07 billion of marks on the swap line it has with West German Bundersbank. The Treasury drew $407.4 million of marks on the swap line between its Exchange Stabilization Fund and the Bundesbank. In addition, the Fed sold $3.6 million in marks from balances it already had. All the Swiss francs sold were drawn on the swap line with the Swiss National Bank.