Treasury Secretary Donald T. Regan yesterday rebuffed European and Japanese attempts to shift U.S. policy towards more intervention in currency markets, declaring that "the policy of this administration has been and continues to be that we consider intervention to be useful only in instances of a disorderly foreign exchange market."
Regan's statement was released only minutes after the finance ministers of the seven major industrialized nations--including the United States--issued a joint statement that appeared to sanction somewhat more coordinated, government intervention in order to stabilize the dollar and other currencies.
The secretary's comments also came just days after Federal Reserve Board Chairman Paul Volcker spoke out in favor of occasional "coordinated" intervention by governments to dampen sharp currency swings. Regan said he listened to the Fed chairman's advice, "but, I can take it or leave it . . . remember, the decision is mine" in the international arena.
The group of finance ministers, which included Regan, had spent the afternoon in Washington discussing a joint study on the effectiveness of exchange rate intervention. The study was established at last year's economic summit meeting in Versailles after the seven nations failed to reach agreement on an intervention policy.
The seven nations involved in the study were the United States, Britain, France, Canada, Italy, West Germany and Japan.
The results released yesterday were inconclusive enough for all sides to draw some comfort. However, they suggested intervention could be useful in far more cases than the U.S. position would imply.
Regan agreed that the United States also would approve intervention aimed at countering "short-term volatility" of exchange rates, but he stressed that despite this form of words, which some had thought might imply more intervention in future, U.S. policy had not changed.
He rejected complaints that the United States has contributed to instability in exchange markets by its large budget deficits and high interest rates. He also accused France and Italy of failing to live up to a pledge made by the seven nations at last year's summit to pursue policies aimed at greater convergence of their economies. Currencies will become more stable only when "underlying economic and financial conditions" permit, he said.
The administration position on currency intervention has drawn fire from U.S. allies since 1981 when the Treasury declared that it was giving up large-scale buying and selling of currencies that used to be common, and would intervene in the foreign exchange markets only very rarely, if it considered it necessary to calm turbulent trading. Since then, the U.S. government has intervened in the markets only about half a dozen times, a Treasury spokesman said yesterday.
Regan acknowledged that the contentious issue of whether and when to intervene in currency markets would continue to be discussed, and it will undoubtedly be raised at the summit meeting of the seven nations in Williamsburg next month. He also left open the possiblity that in the future conditions might change sufficiently to justify more intervention. But he said that if the future currency market conditions were the same as in the past, the United States would act just as it had in the past.
France has been particularly opposed to the U.S. policy of laissez-faire in the foreign exchange markets, but all the industrialized nations engage in more intervention than does the United States.
The joint statement of the finance ministers conceded that "under present circumstances, the role of intervention can only be limited." But it said that, in addition to countering "disorderly" markets, and short-term volatility, intervention "may also express an attitude toward exchange markets." It said that the finance ministers were "agreed on the need for closer consultations on policies and market conditions and . . . are willing to undertake coordinated intervention in instances where it is agreed that such intervention would be helpful." The study concluded that intervention was more effective when it was done in a coordinated fashion.
Regan told reporters that the United States had already been doing coordinated intervention although "we didn't know we were doing" it. He said coordination meant "we call them up on the telephone and tell them we're going to do it and see if they want to go along. If they go along with us, that's coordinated intervention. If they don't go along with us, it's unilateral intervention."