When President Nixon determined in early February 1973 that the U.S. dollar had to be devalued for the second time in 14 months, he sent his under secretary of Treasury, Paul A. Volcker, on a secret mission to Tokyo and Bonn to get the agreement of the nation's two most important trading partners.
Volcker, who had played a role since 1969 in patching up a series of gold and dollar crises, turned his 6 foot 7 frame and ever-present cigar into an Air Force plane and headed for Tokyo.
There, he left a hat with his name at the Ministry of Finance, but the thoughtful Japanese got it back to him in time. In Bonn, however, his gangling frame almost blew the cover when a German reporter spotted him.
But with the dollar deal in his pocket, he telephoned the details to Treasury Secretary George Shultx. Nixon announced it February 12, 1973, and a new era of fluctuating exchange rates was formally launched.
But the hopes of Volcker and others then that the leading nations of the world could work themselves back to a greater sense of monetary stability haven't been fulfilled, primarily because of the upheaval caused by oil price increases and worldwide inflation.
Now, as Volcker moves from the presidency of the New York Federal Reserve Bank (at $110,000 a year) to the chairmanship of the entire Federal Reserve system (at $57,500 a year), he once again will have to confront a tense international monetary situation, the key element of which is a weaker dollar.
In a sense, there is a crisis of confidence in the Carter administration's erratic behavior -- one that Volcker's mere appointment may do much to subdue.
Most financial specialists agree that Volcker is uniquely qualified for the job, although one former Federal Reserve chairman frequently referred to him as "just a technician." In some ways, Volcker's promotion is the natural culmination of career of concentration on matters of high internation finance.
Robert V. Roosa of Brown Bros. Harriman, himself once an undersecretary for monetary affair (and frequently considered for both the Fed and Treasury top roles, said yesterday in a telephone conversation:
"Paul must be the only man in this country, with the kind of experience he has had for over 25 years in the Federal Reserve, the Treasury and the commercial banking system. Remember, this experience has been at the top level -- and there's nobody in the whole world of international finance that Volcker doesn't know."
Volcker is nominally a Democrat. He served not only in the Nixon administration, but as an assistant Treasury secretary in the Kennedy administration. "You could call him nonpolitical," said former Treasury official Herman Liebling.
He tends, of course, to be conservative. Thus, in the past several months, in his role as a member and vice chairman of the Federal Reserve Open Market Committee -- the top policy group of the Fed -- Volcker voted in a minority against chairman G. William Miller. Volcker wanted a somewhat tighter monetary policy to slow inflation and protect the dollar.
Volcker's preoccupation with international monetary affairs, and the recent record of his votes, suggests that he may tip the Fed toward a slightly tougher monetary policy than Miller. Moreover, Volcker himself is likely to be replaced as president of the New York Federal Reserve Bank by an equally conservative voice, who in turn will become a member and vice chairman of the FOMC, and the entire group may have a slightly more restrictive stance.
But those who have worked for and with Volcker over the years agree almost to a man that he shouldn't be described as a conservative ideoglogue, but rather as a pragmatic thinker. For example, as the times demanded it, he switched from espousing a system of fixed exchange rates to the more flexible fluctuating system that now dominates.
"He's not doctrinarie," said a former colleague. "Paul will do whatever is needed to do the job. But you can mark this down: Even in this recession, he's not going to lose sight of the need to keep inflation from getting a new lease on life."
The financial community expects not only a somewhat firmer line on monetary policy from Volcker than it had been getting from Miller, but a tighter-lipped chairman, more in the tradition of the past.
In the view of some, Miller talked too freely -- on the record -- about too may ny things, including some that weren't strictly the preserve of the Federal Reserve.
That's likely to change. In his various Treasury incarnations, Volcker was cooperative in explaining technical issues at press conferences called for such purposes. But he was skeptical of the need to make further elaborations to newsmen or to deal in extensive "background" conferences. CAPTION: Illustration, no caption