VOLCKER WARNS AGAINST SIZEABLE DLR DECLINE
Federal Reserve Board Chairman Paul
Volcker said a further large drop in the value of the dollar
could be counterproductive for world economic growth.
    Testifying before the Senate Banking Committee, Volcker
said that Europe and Japan were slowing exports and that growth
in those countries was also decreasing.
    "In that kind of situation, further sizeable depreciation
of the dollar could well be counterproductive," he said.
    Domestic expansion in foreign industrial countries has not
been enough to offset the effects of slower exports, Volcker
said.
    On the value of the dollar, Volcker said he could not say
whether it should be higher or lower to restore balance in
trade.
    "What we do know is that a substantial exchange rate
adjustment has already been made," he said.
    "That adjustment should be large enough, in a context of a
growing world economy and fiscal restraint in the United
States, to support the widespread expectations of a narrowing
in the real trade deficit in the period ahead," he said.
    Volcker said U.S. exports were now growing substantially
while import growth should slow.
    Volcker said that to improve the trade deficit with a
minimum of inflationary pressure, the United States would have
to slow its spending growth.
    It would also have to achieve a better balance between
investment and domestic savings if it wants to be able to
dispense with foreign capital.
    "The constructive way to work in the needed direction would
be to reduce our budget deficit, year by year, paving the way
for improvements in our trade accounts," he said.
    Relying on depreciation of the dollar alone would risk
renewed inflation, he said.
 Reuter
