U.S. dollar too high, say seven giants

Press, 25 September 1989, Page 10

U.S. dollar too high, say seven giants

NZPA-Reuter Washington Finance Ministers from the world’s seven biggest industrial democracies agreed on Saturday the U.S. dollar was too high and warned foreign exchange markets they would not tolerate a further rise. The Ministers and their central bank governors issued a toughly-worded statement designed to reimpose their authority on currency markets after months during which the dollar defied their attempts to push it lower. The seven — the United States, Japan, West Germany, Britain, France, Italy and Canada — also pledged, after a nearly eight-hour meeting, to support Poland in its efforts to transform its economy into a Western-style free market model.

“The whole meeting ... became electric when we started to talk about the changes that have been going on in the Soviet Union and Poland,” said the United States Treasury Secretary, Mr Nicholas Brady. “It’s an event that changes the world.” The twin issues of Poland and the dollar dominated the talks, held during this year’s annual International Monetary Fund and World Bank meetings, and produced a more strongly-worded

warning on currencies than some officials had expected. “It was commonly recognised the dollar has been too high,” said the Japanese Finance Minister, Mr Ryutaro Hashimoto. “The consensus that it is too strong has been reaffirmed.” The seven, using code language designed to transmit their message to currency markets when they reopen today, said the dollar’s recent rise was “inconsistent with longer-run economic fundamentals” — another way of saying too high.

The seven went on to say in a communique: “A rise of the dollar above current levels or an excessive decline could adversely affect prospects for the world economy.” That statement was backed up with a thinly-veiled pledge to intervene on currency markets, prompting one senior European monetary official to say: “If I were a banker I wouldn’t want to test this agreement.” The dollar has risen by about 17 per cent against the Japanese yen this year and by 10 per cent against the West German mark, sparking concern among policy-makers that it could upset the seven-year period of world economic expansion.