The Federal Reserve system and the Treasury sold nearly $4.2 billion of West German marks to prop up the value of the dollar during September and early October.
But after the central bank put its new type money policy into effect on Oct. 6 -- one designed to curb inflation and money growth at home and foreign currency speculation abroad -- the U.S. was able to stop intervening in currency markets, according to Scott E. Pardee, who manages foreign operations for the New York Federal Reserve Bank.
During September the dollar took a terrific beating on the international market and the price of gold rose sharply.
From Sept. 1 until Oct. 5, "U.S. authorities intervened almost every business day," the Federal Reserve of ficial said.
All told, Pardee said, central banks from Tokyo to the United States intervened in foreign currency markets to the tune of $31 billion between Aug. 1 and Oct. 31, compared with $34 billion during the previous three months.
Central banks intervened in their own currency markets to keep the value of their currency from rising or falling faster than they want it to.
For example, during September when the value of the U.S. dollar was plummeting the Federal Reserve would step in and offer to sell West German marks for dollars. That action is designed to stimulate demand for the dollar and keep it from falling against the mark.
The U.S. confined nearly all its intervention to the West German mark, although it also sold $44.2 million of Swiss francs.
The Fed borrowed about $1.85 billion worth of marks from West Germany. The rest of the marks it sold came from mark deposits in already had.
The Fed borrowed the mark through the so-called swap network, a network of credit lines that links the Fed with 14 other central banks.When other central banks need dollars -- during the rare periods of late that the dollar is rising faster than desired -- they can borrow from the Federal Reserve.