Pushing the currency buttons

PART of moving into a new office is a mundane process of learning where everything is - the executive closet, the executive washroom; learning how to use the new phone or copier; learning which buttons on the desk can be pushed to bring a secretary or other aide scurrying. President-elect George Bush and his associates seem to be going through just this kind of process, albeit on rather an exalted level.

In the three weeks since American voters renewed the Republicans' lease on the White House, the financial markets have been skittish. The dollar has fallen to record postwar lows against the yen. One trembles to think what might have happened if Wall Street's man had lost.

But Mr. Bush and his team are learning, by trial and error, to push the buttons of office. They have found that even a Florida fishing trip can be a forum for macroeconomic policy pronouncements, if it is a presidential trip. Yes, immediate action on the budget deficit. No, there is no change contemplated for currency policy.

Sometimes they are finding they have to discourage unauthorized button pushing: No, do not take Martin Feldstein seriously when he says the dollar needs to fall 20 percent; he doesn't speak for us, they say.

We hope, though, that the new administration masters the buttons soon, and starts giving clear signals on its currency policy. The comments from Mr. Feldstein, a former economic adviser to President Reagan, and others gain authority when nothing more forceful comes from the Bush transition team itself.

A stable dollar is probably more desirable than a falling one. It had been the policy of the Reagan administration, when James Baker was secretary of the Treasury, to work to hold the dollar steady. But before that, Mr. Baker was architect of a cheap dollar (and hence, beggar-thy-neighbor) policy. In his new capacity as secretary of state, he will have to demonstrate his commitment to a stable dollar, not the ever-cheapening one that has helped make American goods more competitive but has also wrought havoc with dollar-denominated investments, among other things.

Over the long haul, though, the value of the dollar will have to be supported by something more substantial than mere jawboning. Many economists are calling for decisive action on the federal budget deficit to demonstrate the sort of fiscal soundness that holds the dollar steady. Others dismiss the budget as irrelevant to dollar policy. But in any case, officials of the incoming administration need to be careful not to sound like graduates of the Alfred E. Newman (``What? Me worry?'') School of Financial Management.

Meanwhile, developments that are making other countries more attractive to investors need to be taken into account: tax reforms in Japan, West Germany, and Sweden, as well as election results in Canada, which have made ratification of a free-trade pact with the United States look like a sure thing. Recent readjustments may be rises in these currencies rather than declines in the dollar.

The decline of the dollar over the past few years has had an effect, however; the American share of total Group of Seven exports has risen from 19.5 to 25 percent since 1986. And the free marketeers hopefully point out that when the price is right once again, production that has wandered offshore may yet return to the United States. Televisions, for instance, are once again being turned out in the US, albeit for Japanese rather than American companies.

Still, the feeling remains that American competitiveness is more than just a matter of a cheap dollar, and that international economic harmony is better served by stable than by gyrating currency rates. The Bush administration must make clear that this is understood.

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