On Saturday, Jan. 18, Federal Reserve Board Chairman Paul A. Volcker whispered to a colleague at a meeting of major industrial nations in Longdon that Japan had agreed to lower its discount rate before the Fed did, in a coordinated effort with West Germany and other nations to bring global interest rates down.

Volcker had been persuaded, somewhat reluctantly, to go along with the rare joint action by those three countries to reduce their interest rates, but he refused to go first. If the United States were to lead, he feared, the dollar might plunge too drastically.

The central banks of the three nations, followed by other major countries, finally lowered their rates March 6 and 7.

The meeting in London, which began with a dinner in the wood-paneled dining room at No. 11 Downing St., the residence of the British chancellor of the Exchequer, was a special session of the finance ministers and central bankers of the Group of Five -- the United States, West Germany, Japan, Great Britain and France -- called to discuss joint international action on interest rates.

This effort, in turn, was a by-product of a meeting on Sept. 22 at the Plaza Hotel in New York City, where the Group of Five took unprecedented action to drive the dollar down through exchange-market intervention.

This plan had been orchestrated by Treasury Secretary James A. Baker III to help defuse protectionist pressure in Congress. The Reagan administration, like others, had come to believe that the overvalued dollar was pricing American products out of world markets.

The New York G-5 meeting had a dramatic initial impact. But within a few weeks, the process stalled, and the dollar, instead of continuing its decline, stayed on a plateau.

"The Germans were really not interested in a new system to manage exchange rates," said a U.S. government source. "They were interested in substantial tokenism that would deflate protectionist sentiment. But they got worried that the German mark would appreciate too much, and at one point they actually intervened the other way to keep the mark from rising further."

Meanwhile, in their anxiety to strengthen the yen so as to avert congressional retaliation on the trade issue, the Japanese government not only was intervening as agreed at the New York session, but had raised interest rates.

That, American officials concluded, was the wrong technique, because it would dampen Japanese growth.

"When we saw the dollar on a plateau, we asked, 'Where do we go from here?' " said an American source. That was in mid-November.

"Since the Germans didn't want to move a whole lot more on the dollar, we had the idea that at least we could get into the interest-rate discussion," the U.S offical said.

The rationale was that Japan had to be encouraged to reverse its direction, and that lower interest rates -- if achieved on a global, coordinated basis -- would encourage a further decline in the dollar, without the crash that Volcker feared.

The obstacle was West Germany, whose central bank is independent of its federal government. Run by President Karl Otto Poehl, the Bundesbank made clear that it felt that the German recovery was proceeding nicely, and that a decline in interest rates would risk inflation.

Nonetheless, American government officials kept pressing the Germans to expand their economy, in line with the general commitment made at the New York meeting, arguing that independent projections for German economic growth were lower than the optimistic numbers coming out of Bonn.

Baker also pointed to the prospective passage of the Gramm-Rudman-Hollings law, which he said would slow the American economy, justifying expansionary policies elsewhere.

By the time the U.S. team flew off to London for the Jan. 18 meeting, said a U.S. source, Volcker had committed himself to at least a "slight" downward move in the discount rate.

The major powers tried to keep their plans secret, but two things occurred to put what had been intended as a low-key meeting into the spotlight -- and in restrospect may actually have delayed the coordinated interest-rate move.

First, Prime Minister Yasuhiro Nakasone announced that Japan would argue for a coordinated reduction of interest rates in London.

Then, in a gaffe that angered Baker, German Economics Minister Martin Bangemann told reporters at a breakfast in Washington that Baker was pushing for lower interest rates and that the Germans were resisting.

Bangemann's comments were accurate, but embarrassing. Expectations were raised in world financial markets that an interest rate deal, comparable in importance to the September G-5 agreement on the dollar, was possible in London.

But what was clear immediately when the officials gathered at 11 Downing St. was that no one was prepared to act. "Neither Volcker not Poehl was ready to commit themselves," said a European source. "We all agreed that a decline in market rates would be highly desirable for the obvious reasons, but the only question was how to get it."

According to an American source, the understanding at the end of the meeting was that a coordinated move would take place before the next scheduled G-5 meeting in April, with the amount of the interest-rate cut and the precise timing left to the central bankers.

This was a delicate issue: among some of the central bankers, there is a strong resistance to anything that can be considered political pressure.

A key central banker from Europe snapped yesterday: "I would never accept a decision of the G-5 on monetary policy."

He argued that had it not been for all the publicity attached to the London meeting, implying pressure from the politically oriented finance ministers, "we might actually have quietly gotten the job done before this."

On the other hand, Federal Reserve Vice Chairman Preston Martin, in an interview on March 7 -- the day after the Fed voted 6 to 0 to lower the discount rate -- said flatly that it could not have happened without the prod from the G-5.

Another U.S. official took a position in between: "I am a believer that this kind of peer-group pressure in the G-5 has effects, but you can't definitively prove it."

In any event, when the central bankers of the 11 major industrial countries -- including the United States -- met separately on Feb. 10 at Basle, Switzerland,, "there was a certain sympathy for lower interest rates," said a European source.

"By that time, the markets had turned on us [interest rates were going down by themselves], and that made it easier to act. The drop in oil prices also made it easier, because it virtually eliminated all inflationary threats."