How strong is the dollar?
Strong enough, in a political sense, to make allies of Rep. Jack Kemp and Sen. Bill Bradley.
Starting from nearly opposite political and philosophical poles, Kemp, a conservative Republican from New York, and Bradley, a liberal Democrat from New Jersey, have come together as sponsors of an international conference next month on the impact of the dollar on the world's economic health and stability.
The disruptive power of an overvalued dollar in today's economy is probably responsible, as well, for the impressive list of participants and observers who have signed up for the three-day conference here Nov. 11 through 13.
The list includes Valery Giscard d'Estaing, former president of France; Alan Greenspan, chairman of the Council of Economic Advisers in the Ford administration; Robert Strauss, special trade representative in the Carter administration; Preston Martin, vice chairman of the Federal Reserve Board; Sen. Edward M. Kennedy (D-Mass.), Deputy Treasury Secretary Richard Darman, and many of the most important American and foreign experts on international trade and monetary policy.
Like Kemp and Bradley, the participants hold widely divergent opinions about how the relationship between the dollar and the rest of the world's currencies should be arranged.
But like the two sponsors, many of the participants share two common viewpoints.
One is that the 12-year-old "floating" exchange rate system, which generally allows the values of the dollar and other major currencies to swing with economic conditions and market forces, has become a troubling threat to trade and political alliances in the industrial world.
In this country, the dollar's upward march since 1980 has badly wounded U.S. companies by effectively boosting the prices of goods they ship abroad while lowering the prices of imports against which they compete at home. Between half and two-thirds of the record U.S. trade deficit is attributable to the overvalued dollar, most economists reckon.
The plant closings, layoffs and corporate financial losses accompanying the trade deficits have, in turn, produced a powerful political backlash in Congress on trade.
That uproar was stilled at least temporarily by the Reagan administration's Sept. 22 agreement with four of its major trading partners to try to push the dollar down.
Using the Japanese yen as benchmark, the dollar has dropped more than 10 percent since the February peak, to its current value of about 215 yen per dollar. Japanese officials appear determined to push it still lower.
That action alone is not likely to make any immediate change in the U.S. balance-of-trade deficit.
But it is responsible for the second shared viewpoint that underlies the Kemp-Bradley conference.
The administration's move on Sept. 22 suggests to Kemp, Bradley and other participants that the door has been opened at least a crack to the possibility of a new international currency system to replace floating rates.
"For 12 years we have not focused very much on the monetary system. Governments haven't done very much about it," said Robert Hormats, an investment banker and vice president of Goldman, Sachs & Co. "Now, it's a problem that has become very visible to a broadening range of constituencies." The conference should be a valuable forum for identifying the issues and pushing the debate along, he said.
"What we did on Sept. 22 in effect was say that exchange rates need to be managed better and that governments can't simply step aside and let money manage itself. . . ."
John Williamson, an economist with the Institute for International Economics here, said, "Chances are, nothing will be accomplished in the sense of a unanimous declaration at the end of the day that would lead the president to go on television" with a new policy. But he, too, thinks the conference will advance the debate.
"If it's going to have an effect, it's going to be on political thinking," said Williamson.
It isn't just a common perception of the problem that brings many of the participants together, say Richard Medley and David Smick, the former congressional aides turned consultants who have put the conference together. "Given the breakdown of the consensus on the floating rate regime, they know there has to be a next step," said Medley.
Kemp's ultimate goal is a return to fixed exchange rates, anchored to gold, the regime that was replaced by floating rates in the early 1970s. This, he contends would produce lower interest rates and greater economic stability, a minority position among the conference participants.
Bradley's goal also is greater stability and a more realistic valuation of the dollar -- which he sees as a key to American industrial competitiveness. He would achieve this not with a return to gold, but in large part through a "strategic reserve" of foreign currencies maintained by the U.S. government to stabilize swings in currency values.
The conference may focus on alternatives that stop well short of either of these goals.
It is also likely to add support for a closer coordination of the economic policies of the United States and its trading partners, who have been out of step throughout the dollar's long upward climb in the 1980s.
Without such closer coordination, Fed Vice Chairman Martin said in a speech yesterday, attempts by governments to control the shifts of currencies would be overwhelmed.
If the United States had been committed to a lower dollar as part of a fixed exchange rate regime, the Federal Reserve would have had to try to counteract the economic stimulation provided by the Reagan administration and Congress since 1981. "The Federal Reserve could thus run a real risk of a recession to keep the nominal exchange value of the dollar from rising. Our 'political economy' would hardly tolerate such a risk. . . . ," Martin said.
"The sluggish world economy stridently calls for greater global balance in the mix of both monetary and fiscal policies. This, it seems to me, is the challenge for economic policy in the next decade," said Martin.
He called the Sept. 22 agreement a valuable first step. The focus of the November conference is on a next step.