For a dozen years the world has been living, not very comfortably, with currency exchange rates that float. It's been a dozen years full of surprises in the currency market, most of them disruptive and some of them very expensive. The float is the kind of arrangement that persists because nobody can quite think of any alternative that's likely to work. But perhaps that is now going to change, in a modest but useful way.
Floating means leaving a currency's exchange rate to the daily flow of buying and selling. Sometimes -- like the U.S. dollar in 1979-80 -- a currency's price in other countries' money falls well below its real value in terms of the things that it can actually buy at home. Sometimes -- like the dollar today -- it rises well above that value. That would never happen if foreign exchange only financed trade. But there are other forces in the currency market, great flows of investment and speculation, that constantly swing the rates, distorting trade and causing unemployment.
Until the early 1970s, governments were usually able to stabilize exchange rates by buying and selling on their own account. It was the enormous expansion of foreign currency trading that destroyed the fixed-rate system. On a typical business day the buying and selling of U.S. dollars now reaches about $200 billion. That's roughly 20 times this country's GNP per day.
But if governments can no longer fix exchange rates, they can still do a lot to damp down the swings and mitigate damage to their domestic economies. Governments can still intervene by buying and selling currencies. It can be very helpful in the short run to break speculative surges.
For the longer run, there's only one thing that works -- coordination of economic policy among the trading countries' governments. Most governments don't much care for the idea, because it limits their freedom of action. The Reagan administration has until this spring resisted the idea vigorously, because it would mean international pressure on the United States to bring down its budget deficits.
But financial specialists representing most of the rich countries have been working on a set of proposals that constitute a nudge toward economic coordination. The process, working through the International Monetary Fund, is likely to move slowly toward adoption over the months ahead. Supporting it is very much in the interest of this country in particular. The super-high dollar is not stable. If and when it begins to fall, the United States is going to need more help from governments abroad than it can expect under the present rules of the game.