''No kidding!'' said Rimmer de Vries, when told that the United States, West Germany, and Japan had intervened in the foreign exchange markets to stem the rise in the value of the dollar.
It was early, and the top international economist at Morgan Guaranty Trust Company of New York had not yet glanced at the Tuesday papers. He was surprised at the news because the US Treasury, with its current emphasis on the importance of free markets, is reluctant to poke about in the foreign exchange market. The last time it intervened was in October 1982, when it and the Federal Reserve system bought some German marks and Japanese yen, again in an effort to keep the dollar from soaring through the roof.
Dr. de Vries has become renowned as an authority on such issues as the balance of payments, foreign exchange rates, and other international economic issues. His bank's monthly publication, World Financial Markets, is read in central banks and finance ministeries around the world because of the sophistication of its analysis.
Well, Dr. de Vries welcomed the intervention. ''It may calm down the excessive pressures on the foreign exchange markets,'' he said.
With the US economy showing considerable strength in the second quarter, interest rates have started to move up again a little. This, notes the Morgan economist, is ''normal.'' But those buying and selling foreign exchange became excited, suspecting that the dollar would move much further upward in value.
''There was great speculation,'' said de Vries. ''No one was selling dollars. Everyone was buying dollars. You didn't know what the end result was going to be. The dollar could go anywhere against the mark, the (Dutch) guilder, etc. in that kind of atmosphere.''
So with $1 worth more than eight French francs and some 2.7 German marks (the highest level in nine years), the US stepped in to buy the weaker currencies, with some help from abroad. Treasury officials have always said they would intervene in the case of ''disorderly'' markets. Speculators were nervous partially because Fed Chairman Paul A. Volcker last week warned of the ''clash'' between private and government demands for credit.
Moreover, the administration has been under pressure from European governments and Congress to step in and hold down the dollar. For the Europeans, a strong dollar increases the cost of oil imports and adds to inflationary pressures. Congress is worried that a strong dollar will hurt US exports, increase the imports of Japanese and other foreign goods, and weaken the recovery.
Dr. de Vries cautions that foreign exchange intervention is not a fundamental solution to the problem of a strong dollar. That, he says, depends on basic monetary and fiscal policy - which is sort of a code reference to the need for cutting the federal budget deficit. This would lower interest rates and make dollar purchases by foreigners less tempting.
Nonetheless, Dr. de Vries says, ''People should be more relaxed, more appreciative of the strength of the dollar.''
In other words, his analysis shows that the deficit in the US balance of payments is far less than the official figures show and that the dollar is less overvalued than most economists figure.
In the July issue of World Financial Markets, it is noted that there is a global statistical discrepancy in measuring current international transactions that exceeded $80 billion last year. Many nations tend to overstate their balance of payments deficits or understate their surpluses. One major reason is the difficulty of measuring earnings from providing services abroad, such as receipts from transportation services, investment income, consulting fees, and so on. The US is especially strong in these areas, and thus its official accounts are ''seriously flawed,'' according to the publication.
Further, Morgan Guaranty economists, for various reasons, figure US manufacturers have lost only 12 percent in their relative price competitiveness due to the strength of the dollar, rather than the 25 percent usually reckoned.
This overvaluation will speed up ''the replacement of outmoded industries by newer and more technologically advanced enterprises,'' the bank says. ''Policymakers will not wish the overvaluation to be too severe, lest social tolerance of the transitional unemployment be stretched to the breaking point.'' That's probably why the US Treasury intervened to hold down the dollar.