A former employe of Citibank, the nation's second-largest bank, has accused that institution and other major U. S. banks of deliberately driving down the value of the dollar in international money markets for their own profit.

He has also charged, in court documents, that Citibank manipulates its books to escape taxes in other countries.

The bank strongly denies any wrong-doing, and Thomas Theobald, Citibank executive vice president, characterized the chargeds as "good entertainment" but bearing "no particular immediate relation to reality."

The employe, David Edwards, 34, was fired Feb. 9, after what he describes as repeated attempts to bring his charges to the attention of top management. He is currently suing the bank in federal court, charging that he was wrongfully dismissed.

This suit, and magazine articles Edwards has written, are providing the outside world with a rare glimpse of the inside workings of international high finance.The suit and articles have also raised serious questions about the role of multinational banks and their money managers in the current decline of the dollar abroad.

The dramatic decline of the value of the dollar against foreign currencies in recent months has caused widespread concern here and abroad.

Currencies are normally regarded as reflecting the economic strengths of the countries that produce them. The dollar's decline has been taken as a sign of perceived weakness in the American economy, and its skid has led the Carter administration to consider a variety of steps to shore it up.

Edwards' charges indicate, however, that other forces are involved. He suggests that a small band of hyperactive money traders can, and do, act to "beat down the dollar" to increase bank profits and their commissions.

"The dollar is not falling in value," he contends. "It is being pushed by a handful of people with more power than any one government."

The dollar's "dramatic fall has been widely blamed on our yawning trade deficit," Edwards wrote in the introduction to an article he wrote for MBA, a monthly publication that circulates to graduates of major U.S. business schools. "Yet the U.S. government is the most stable in the world. But the headlines have ignored one culprit for the demise of the dollar: banks. Through foreign currency exchange dealers, who make up a fraction of the world's international banking community, banks trigger exchange rate movements for big profits."

In the MBA article, Edwards, who worked in Europe for Citibank for more than four years, outlines the activity in a typical European trading room of an American bank. He says that while he has changed the names of the people and banks, the events, and remarks by participants, are real.

A high official of the office of the U.S. comptroller of the currency called the article "100 percent accurate" and said he was even able to supply for his superiors the real names involved.

Edwards describes this scene:

A London trading room supervisor learns early one morning that the three largest Swiss banks are planning to sell dollars later that day.

The supervisor, in conjunction with other bank officials, decides that this is a good time to make some money by also selling dollars - in a hurry - and then buying them back later at a lower price.

Speaking to his lieutenants, the trader outlines his plan of attack:

"We're going to hit the dollar again today. Henry, you take the lead. Dump $20 million against the mark, 10 against Swiss francs and 20 against (British) sterling. Duncan, let Henry kick the hell out of the dollar. Then tell the multinationals the dollar might be a little soft. By noon they'll run into your arms."

What is happening is this: The bank is borrowing $50 million from the Eurodollar market for four days. (Eurodollar market is the term used to describe the flow of dollars circulating in Europe at any given time.) It immediately uses the $50 million to buy several other currencies, which are then put in the bank.

But in the process of selling the dollars, the bank is fueling the drop in the value of the dollar. By the simple law of supply and demand, excess supply leads to a drop in value.

Meanwhile, Duncan, another bank employe, has brought the dropping dollar to the attention of some of the large multinational companies with large dollar deposits in the bank. He convinces some of them that they, too, should reduce their dollar holdings. These sell their dollars and buy other currencies, unknowingly helping the bank further cut the value of the dollar.

"This morning I sold $50 million and if the dollar declines 2 percent by Friday, the way I expect it to, by the time I close my position [buy back the dollars] I will make well over $1 million," the trader in the article explains to a bank trainee. "That's in one week."

But, in fact, it only took a day. The New York banks panicked when the dollar decline hit the morning news shows (9 a.m. in New York is 3 p.m. in London). "When the New York banks opened for business, they all sold," Edwards wrote, "pushing the dollar lower. Henry's traders bought back all the dollars they had sold in the morning. Jimmy [the trading supervisor] had made $1,235,000 [after the original $50 millio plus interest was used to pay off the loan] and the week had just begun."

Although the beating down of the dollar is the most interesting aspects of Edwards' article, it is what happens next that got him in trouble with his former employer, Citibank.

After a bank makes these huge profits, Edwards contends, it develops a series of paper transactions involving several of its overseas branches. The bank essentially shifts the profits from its European offices, where they would be subject to high local taxes, to offshore tax havens, like Nassau or Monaco, where taxes are low or nonexistent.

In such transactions, Edwards says, the bank can sell dollars from its Paris office, for example, to its Nassau office, and buy them back later at a higher price. In doing so, the Paris office records a loss, and the Nassau office posts the profits. But as far as the parent bank is concerned, the profits and losses cancel each other out the only real effect is to reduce taxes, Edwards charges. In this example, the big loss in Paris goes to shelter other profits from high French taxes, while the profits are recorded in low-tax Nassau.

Citibank disputes practically all of Edwards' allegations. In a wide-ranging interview last week Theobald, bank executive vice president in charge of the International Banking Group and the man who eventually fired Edwards, said that the bank does not violate any foreign laws, and that bank money traders don't have anywhere near the power Edwards alleges they have.

Theobald calls Edwards' article in MBA "a kind of Jaws II for the Crash of '79 [a recent book describing a fictionalized collapse of the financial world because of manipulation by banks and Middle East oil countries] - good entertainment in both cases, but no particular immediate relation to reality in either case. Money traders don't have the authority to go out and make [those] kinds of commitments."

Theobald says that money speculation really relates to world trade, and reflects changes in the trade market. "Individual speculation is not very important in the total picture."

The bank has stated, with Theobald's concurrence, that Edwards was fired "not because he raised questions about bank practices, but because of circumstances surrounding his refusal to accept reassignment."

But that statement conflicts with a letter written to Edwards on Dec. 14, 1977, by Theoblad, and obtained by The Washington Post.

"We had, Theobald wrote, "after careful review and consideration, and prior to the receipt of your counsel's letter, concluded that your continued allegations were detrimental to the best interests of Citibank.Therefore, we request your immediate resignation."

Theobald says that the bank believes that every transaction (like the Paris-Nassau exchange) described by Edwards "would withstand local [tax] scrutiny. None of this is accused of being off the books, or mislabeled or whatever else," he adds. "The reason Edwards was able to remove such documentation was that the full documentation was there."

Theobald said six officials in each country look at the bank's books on a regular basis, and that the transactions in question were done "with advice of counsel."

Theobald explains the Paris-Nassau type of transaction this way:

Many countries have laws that do not allow currency traders to maintain positions overnight - that is, they must complete transactions involving the local currency by the end of each day.

That kind of law, Theobald says, does not recognize the reality of international money trading, which is essentially a 24-hour-a-day operation, and which frequently requires a trader to hold a position overnight based on his projections of future drops or increases in the value of a currency.

Thus, Theobald maintains, many of the transactions that Edwards claims were designed to evade taxes, were in fact necessitated by local laws which forced the bank to "park" holdings in certain currencies in offshore branches because the country would not allow a local trader to hold the position overnight.

Comptroller of the Currency John Heimann agrees with Theobald about the unrealistic nature of many countries' law. "Statues, regulations and laws of several countries don't recognize the growing importance of the international money market," he said in an interview. "We have to reconcile existing national laws with the realities of the private marketplace."

But an internal study of Citibank's Paris operations done by the consulting firm of Peat, Marwick & Mitchell and obtained by The Washington Post notes certain bookkeeping differences between Citibank's internal records and those records kept for tax purposes.

"In particular," the study said, "we have noted that certain income which is booked offshore is internally attributed to the French branch."

The study also pointed out that there are "certain differences between the criteria which Citibank uses to allocate its income for internal purposes and those for tax purposes."

Finally, under a section entitled "Evaluation of Risks," the report states that "we have not included the possibility that certain items would not be questioned because they are not apparent in the accounts, or because the Tax Inspector would prefer not to go into unusual problems."

The Securities and Exchange commission has opened an investigation of the bank based on Edwards' charges.Edwards has a convincing file of documents to show that the bank did not want to hear what he had to say, "because they (the bank's officials) were all benefiting from the system just the way it was."

Theobald says the bank has investigated Edwards' charges, including some made about individuals, and found them baseless.

However several central figures in the bank's European operation have quit following public exposure of Edwards' charges about them. Theobald claims the bank did not fire them. He said they left because of the hassle caused by Edwards, and have taken better jobs at other banks.