Treasury OKs Euro Intervention
WASHINGTON (AP) _ Concerned that the slump of the new 11-nation European currency could threaten the world economy, the United States joined with its major allies on Friday in an coordinated effort to sell the dollar and other currencies to bolster the beleagered euro.
It marked the first time in two years that the U.S. Treasury had sold dollars to prop up a foreign currency. It did so in 1998 to rescue the Japanese yen when it was tumbling in value in the wake of the Asian financial crisis.
Treasury Secretary Lawrence Summers said the concerted intevention in exchange markets was necessary ``because of shared concerned about the potential implications of recent movements in the euro for the world economy.″
He would not provide details on the extent and the timing of the intervention.
It was the first concerted intervention that has been used to back the euro since its launch in January 1999.
The intervention was announced the day before meetings among finance ministers and central bank presidents of the world’s seven wealthiest countries _ the United States, Japan, Germany, France, Britian, Italy and Canada. The meetings will begin Saturday in Prague.
Summers reiterated that U.S. policy on the dollar is unchanged. ``As I have said many times a strong dollar is in the national interest of the United States.″
Summers earlier this week had refused to speculate about whether the United States would join in an intervention effort when asked about the possibility. The United States is in a difficult position in that a strong dollar has been a major factor keeping inflation low in this country as it lowers the price of foreign goods imported into the United States, which have been hitting record levels of late.
Also, some foreign currency traders had speculated that the United States would not join in an effort to sell dollars so close to a presidential election for fear of triggering concerns on Wall Street about the dollar’s level.
A strong dollar has also been a factor in attracting huge amounts of foreign investment in the United States as the U.S. economy outperformed the rest of the world and offered a higher rate of return than foreigners could get in their own markets.
However, the fear is that at some point, overseas investors will become worried about the big U.S. current account trade deficit and will begin dumping their dollars-demonimated assets, an action that could trigger steep declines in U.S. stock prices and force U.S. interest rates higher as bond prices plunge.
While the global economy was in good shape ``recent developments in oil markets are obviously a concern for consumers and businesses around the world,″ Summers said.
Summers said he expects the G-7 finance ministers will discuss energy-market issues this weekend but he wouldn’t go into details.
``More stable prices in line with historic norms are in the mutual interest of both oil-producing nations and consumers,″ Summers said.
He also would not say just how low he believes what the ideal price of a barrel of oil should be for consumers and producing nations.
Crude-oil prices have been surging and have reached 10-year highs recently.
Summers didn’t rule out possibly using some of the government’s emergency oil reserves to drive down energy prices, one of the options now under consideration by the Clinton administration.
``We need to be prudent in using the strategic reserve,″ Summers said, given a rapidly changing oil market that needs to be constantly monitored. ``We’ve seen some indications that there may be some hoarding behavior, but there are many, many factors that influence oil prices.″
The Democrats’ presidential nominee Al Gore has proposed tapping the oil reserves to push down fuel prices. Republican rival George W. Bush denounced the plan, saying the reserves should only be used for emergencies.
The Federal Reserve declined to comment on the intervention, though experts viewed the Fed’s participation as crucial.
The euro, which hit a record low of 84.38 cents on Wednesday, briefly surged above 90 cents on news of the intervention, but then dropped back down to about 87.95 cents.
The euro’s slide _ 27 percent since its January 1999 introduction _ and skyrocketing oil prices are fanning inflation throughout the 11-nation euro area. A weak currency makes imports more expensive, leading to inflation.