The United States launched a new effort Friday to halt a worrisome slide in the value of the dollar on international currency markets.
The action of the Federal Reserve to buy dollars was confirmed in a brief announcement by Treasury Secretary Lloyd Bentsen, who said the United States was acting in a coordinated effort with the other members of the Group of Seven, the world's largest industrial countries."Our actions today in cooperation with our G-7 partners and other monetary authorities reflect a shared concern about recent developments in financial markets," Bentsen said.
It marked the third time this year that the United States along with other countries has intervened in the markets by selling other currencies and buying dollars in an effort to influence the greenback's value.
The last effort, on May 4, was the biggest such exercise in more than a decade, involving 19 nations.
While it worked briefly, the dollar in recent days has come under renewed pressure, breaking below the psychological barrier of 100 yen for a brief time on Tuesday, the first time that has occurred since the current system of exchange rates was established at the end of World War II.
Bentsen let it be known that if Friday's effort did not succeed, the United States and its allies were prepared to do more.
"We look forward to continued cooperation to maintain the conditions necessary for sustained economic expansion with low inflation," he said.
Friday's action followed strong hints Wednesday by President Clinton and Federal Reserve Chairman Alan Greenspan that the United States would not stand by and let its currency continue to be battered.
The recent attack on the dollar has led to increased speculation that the Federal Reserve will soon boost interest rates for a fifth time this year.
Most economists believe that coordinated dollar-buying by major governments cannot ultimately succeed in influencing markets unless it is backed up by changes in interest rates as well.
Some analysts are looking for the Fed to boost the federal funds rate, the interest that banks charge each other, when they next meet on July 5-6. This short-term rate now stands at 4.25 percent after beginning the year at 3 percent.
While a weak dollar can help ease the U.S. trade deficit by making American goods cheaper and thus more competitive on overseas markets, it carries a risk of higher inflation in this country by making the exports that Americans love to buy more expensive.
It also puts upward pressure on long-term interest rates as foreign investors demand more of a return on their investments to protect against potential losses from the dollar's devaluation.