The brotherhood of central bankers is mysterious, powerful, and cunning - at least to outsiders. Their meetings are mostly secret, their influence over the free-market world's supply of money - and thus over business conditions - enormous. If they act together, and consistently, they can alter the course of a currency and influence global financial markets.
But the intervention by central banks in foreign-exchange markets over the past two weeks shows a very noticeable inconsistency: It appears to have been at least partly ``sterilized,'' or offset by moves in the other direction, according to financial market-watchers. (How currency is sterilized, at right.)
In other words, bolstering the dollar was more show than substance, more reliant on the aura of power and mystery which surrounds central banks than on their changing real economic conditions.
Which is why, despite the importance of the central banks, the eyes of the financial world are really fixed on the Commerce Department's release tomorrow of the United States trade deficit figures for November. The central banks might have been playing illusionist, but the trade numbers are the real show.
And if those numbers indicate an improvement from the previous month, currency traders might feel confident about a stronger dollar. Financial hands say an improvement would be $14 billion to $15 billion, compared with October's $17.6 billion level.
If the trade numbers are worse, however, then the dollar-bolstering intervention of the central banks in the past two weeks could be quickly undone by market pessimism. Good numbers and a steady dollar would probably shore up the stock and bond markets. Poor trade figures could cause more big drops and renewed loss of confidence.
Economists and financial analysts say that when central banks act together they can influence currency markets and hasten or prolong trends that would have occurred anyway. They can do this, however, only if they are not fighting fundamental economic factors. If economic data point to a weaker currency, for instance, the central banks cannot buck the trend for long.
Central banks act in ways that are ``marginal rather than market turning,'' says Gert von der Linde, chief economist of Donaldson, Lufkin & Jenrette Securities in New York; ``even given all the foreign exchange and capital, they have to borrow any currency.''
The Fed's reserves are about $60 billion, notes David Wyss, chief financial economist with Data Resources Inc., a Lexington, Mass., consulting firm. That is only 1 percent of liquid assets in industrial countries. It is less than half the annual US trade deficit. And if central banks sterilize, then the move would be of little lasting consequence anyway.
Mr. von der Linde says the recent moves have been sterilized. Mr. Wyss, however, says it may only have been a partial sterilization.
One thing is certain, says Robert Aliber, professor of international finance at the University of Chicago: The Fed and its counterparts - and the US Treasury and its counterparts - are not going to be talking about higher US interest rates. If the intervention was not sterilized, then higher interest rates could be in the offing.
Professor Aliber says US officials made a ``horribly costly mistake'' last fall when they said US interest rates would rise. ``They cannot repeat this error. The Brady Commission report [on the Oct. 19 stock market crash] tells how close they came'' when the threat of higher interest rates apparently helped destabilize markets around ther world.
Trying to shore up the markets over the past two weeks has been a worthwhile cause, Mr. Aliber says.
``They have a right to dampen the rate of descent, but they got too bold. They boosted the dollar 5 to 6 percent in advance of trade news,'' he says.
So if the trade numbers are not encouraging, the dollar could be in for a big fall. But James Thornblade, senior economist at the Bank of Boston, and other economists say it is about time for the trade news to improve. US exports have been strong. Imports (and foreign travel for Americans) have become very costly.
The trend is in the right direction. The numbers tomorrow will tell the tale, however.