Treasury Undersecretary Anthony Solomon said yesterday that "there is no numerical limitation" on the amount of intervention to which the West German, Swiss and Japanese central banks are committed as part of their joint undertaking with the United States to stabilize the dollar.
Thus, the much-publicized $30 billion U.S. war chest of foreign currencies announced by President Carter Nov. 1 is merely this country's "share," Solomon said, of much larger resources available for intervention in the foreign exchange markets.
In the first interview he has given since the program was announced, Solomon said that all four countries are now following an "activist" intervention policy, and that on some days, "Their intervention is larger than ours."
So far, the Carter program, which involves a stern, high-interest rate policy as well, appears to have been a decided success. The dollar has recovered partially, moving up 7 to 15 per cent against major currencies, while gold, which skyrockets when the dollar is in trouble, has declined by 18 per cent.
And the wild gyrations that had characterized the markets prior to Nov. 1 have calmed down.
"The only reason we mentioned $30 billion," Solomon said, "is that we don't have foreign currencies normally, and therefore, we had to mobilize a package for our share."
In the intervention process, the central banks of the four governments step in to buy dollars when the price is moving down. The United States will acquire marks, yen and other currencies by swap arrangements with other banks, by borrowing in foreign markets, by selling gold, and tapping its credit at the International Monetary Fund.
Solomon made clear that the current policy goes far beyond the pre-Nov. 1 pattern, when intervention was limited merely to counter what were termed "disorderly markets."
Since Nov. 1, the official said, "we have moved into a very activist definition of countering disorderly markets, and in fact, under present conditions, the phrase 'disorderly markets' may be inappropriate, because we are determined to have stability in exchange markets."
In essence, Solomon said that the four governments plan "whatever intervention" is required to prevent markets from becoming disorderly. "It's a response to the markets - on some days it is very substantial, and on other days, none is required," he observed.
Solomon, a principal architect of the support scheme, said the U.S. $30 billion is used for intervention only when U.S. markets are open. When the other countries' markets are open, they use their own resources. Consultation is constant, with the New York Federal Reserve Bank acting as the operational contact point for the United States.
Solomon said he will discuss final details of one part of the $30 billion package - a $10 billion U.S. borrowing denominated in foreign currencies - with European officials in early December.
The borrowing will be in tranches - stages - with the first announcement scheduled for about mid-December. These issues will be available on a limited basis, probably only to certain specific institutions.
Solomon indicated that the U.S. is highly optimistic about long-run trends. "We never would have gotten into this package if we hadn't been convinced that the fundamentals were with us." He referred specifically to an improvement in the U.S. current account deficit, with prospects for an even bigger shrinkage of that deficit in 1979.
One advantage that derives from halting the dollar decline, he pointed out, is that the beneficial effects on the U.S. trade balance from the earlier depreciation of the dollar will now be visible more quickly.
The reason is that the initial effects of depreciation are preverse: Even if the volume of American exports increases (because a cheaper dollar makes them more attractive), the same depreciation makes imports more costly, and shows up earlier.
Solomon said that if the exchange markets for the dollar had continued to depreciate, "the price effects would continue to swamp the volume effect. But now, we will see much quicker the volume effect we got from the previous adjustment."
He said that "it is extremely unlikely in my view" that additional resources will need to be mobilized, but that "a range of other responses" is available to this country and its partners.
Solomon made clear that future "speculative attack" on the dollar, such as the one prior to Nov. 1, would not be tolerate by this country. That doesn't mean, he said, that the United States has a specific dollar rate in mind to defend.