FURTHER DEVALUATION of the U.S. dollar is neither necessary nor desirable, the seven biggest trading countries now jointly declare. That's right. But what are the seven going to do about it?
On that delicate point, their statement is vague. They have been saying the same kinds of things from time to time, in chorus or solo, since last February. Meanwhile, the dollar has fallen substantially.
One purpose of the seven's statement on Tuesday night is perhaps to signal the markets that the dollar has reached a sustainable level and that speculation against it will now become more dangerous. Markets tend to overshoot, and overshooting can do a lot of damage. To the limited extent to which the swings can be damped by this kind of public declaration, it does a useful service.
But, unfortunately, nothing fundamental has changed. The statement by the seven asserts that the major trading countries have shifted internal policy in the direction of better balance. That is true of Japan, but less true of Germany and least true of the United States. The Reagan administration wants the rest of the world to finance the resulting U.S. deficits until the next president takes office. The rest of the world is not eager to cooperate.
This country's international deficit on current account -- the amount of foreign capital that it needs to hold the dollar stable -- was running at last count, in the summer quarter, at a rate of $173.5 billion a year. U.S. interest rates are now too low to attract private funds, and the administration is determined to keep rates down. Nearly all of the support for the dollar is coming from foreign governments.
All of the trading countries have a strong interest in stabilizing the dollar and keeping their own currencies from strangling their foreign trade by rising out of sight. To prevent that from happening, they have been buying dollars by the tens of billions. But they may not be willing to keep buying $173.5 billion a year for very long. They have lost immense amounts of their own money by buying a falling currency, and the process is eventually inflationary in their own economies.
A hasty reading of the seven governments' statement might suggest to the unwary that there is a firm agreement among them to support the dollar at its current exchange rate. But the actual understanding seems to be a good deal less precise -- and to leave the future of the dollar in as much uncertainty as ever.