Treasury officials are pleased with the sharp drop of the dollar since major nations agreed in September on a coordinated intervention policy, Assistant Treasury Secretary David C. Mulford said yesterday.
But comments by Federal Reserve Chairman Paul A. Volcker that were released yesterday indicate there still may be subtle differences between the administration and the central bank chairman on the extent of the dollar's decline. Volcker told a Senate committee experience shows that the effect of intervention is likely to be small and short-lived unless accompanied by changes in underlying policies.
Mulford said that the United States, which agreed with the other Group of Five nations -- West Germany, Japan, Britain and France -- on Sept. 22 that other currencies should be higher against the dollar, "never had a target. We've never had a percentage change in mind . . . [but] we've been pleased by the change that has taken place so far."
He added that the 30 percent drop in the dollar's value against the yen in the last year, most of it since Sept. 22, "has been very good," but that he had no opinion on whether the process should stabilize now.
In recent statements, Treasury Secretary James A. Baker III has indicated that a further, gradual decline in the dollar would be welcomed to help reduce the U.S. trade deficit. But Volcker has publicly expressed concern that a further drop in the dollar might be destabilizing.
In written responses to questions from members of the Senate Banking Committee, Volcker made explicit what had been indicated unofficially before: that his worry over a free fall of the dollar caused him to object on Feb. 24 to a proposal by Reagan appointees to the Federal Reserve Board of Governors for a cut in the discount rate.
At that time, the dollar had been dropping "fairly rapidly . . . and it was likely, under the circumstances, that a significant easing through open market operations would risk a cumulative decline" of the dollar, Volcker told the Senate committee.
However, he added, the subsequent reduction in German and Japanese interest rates and U.S. market interest rates, and further drops in oil prices made it possible to lower the U.S. discount rate from 7.5 to 7 percent, he said.
Meanwhile, the Japanese government, which fears that the yen is rising so rapidly it will hurt that country's economy, appears to be intervening in the foreign exchange markets to support the dollar and weaken the yen.
At a Tokyo press conference yesterday, central bank governor Satoshi Sumita indicated that the intervention might be continued to prevent wild fluctuations, Dow Jones news service reported. The news service also said Sumita indicated that the Japanese intervention was done in consultation with the Group of Five nations.
Volcker told the committee that the intervention following the September G-5 meeting "may have reinforced and made more credible the statement that policymakers thought nondollar currencies should move somewhat higher, and thus may have accelerated the decline in the dollar that had begun earlier in the year."
Although he warned that intervention alone won't work over long periods of time to adjust exchange rates that are fundamentally out of order, Volcker endorsed President Reagan's State of the Union direction to Baker to explore steps that might lead to greater exchange rate stability.
In response to a question submitted by Sen. William Proxmire (D-Wis.) on proposals for "target" or "reference" zones to stabilize exchange rates, Volcker commented that "major countries do not appear willing to commit themselves to adjust their policies in any automatic way in response to exchange-rate movements, or movements of other economic or financial variables."