Despite the growing expectations abroad that the U.S. and the West Germany may reach agreement this weekend on additional measures to support the dollar, this mood wasn't matched here yesterday.
The U.S. and Germany may decide in the near future to expand existing currency "swap" lines but chairman Henry Reuss of the House Banking Committee asserted in Dow Jones interview that even that isn't necessary.
Reuss, who keeps in close touch with treasury officials on international monetary issues, said that the Carter administration is giving a "cool reception" to demands abroad that the U.S. intervene massively in foreign exchange markets to prop up the dollar against other currencies.
"All evidence to date suggests that the U.S. won't intervene for the purpose of attempting to influence what it believes to be trend movements of exchange rates," Reuss said.
He said that "under no circumstances should we be persuaded to step up our foreign exchange intervention operations".
"Nor should we be talked into issuing any foreign currency denominated bonds," Reuss added.
He said he is sympathetic to the plight of the West Germans in the current international situation "but that shouldn't be allowed to so color our vision that we make the huge and costly mistake of aggressively stepping up our intervention activities."
The West Germans, he asserted, "can't have it both ways." He said that given present world conditions, either the Germans can let the dollar's value fall against the mark and see their exports become less competitive or they can intervene to buy dollars and risk an inflationary increase in their domestic money supply.
The Federal Reserve currently has a $2 billion currency "swap" arrangement with the West German Bundes-bank.
In addition, the Treasury also has a separate currency "swap" totaling between $1 billion and $2 billion with the Germans. Both of these have been used heavily in recent weeks for U.S. foreign exchange interventions. Treasury sources have said that the "swap" lines could be expanded without much difficulty if such action becomes necessary.
Reuss told Dow Jones that he's been in touch with Germany's economic minister Otto Von Lambsdorff and other German officials and has told them that trying to deal with Germany's problems through more aggressive U.S. intervention policies isn't the answer.