WHEN Paul Volcker announced his retirement as Federal Reserve Board chairman a year ago, the bond market took its biggest one-day plunge in five years, over concern that the monetary battle against inflation would be weakened. But that hasn't been the case so far. Alan Greenspan, the current chairman, has proved tough on inflation and more conservative than his lanky predecessor.
That pleases like-minded central bankers abroad, such as those managing central banks in West Germany, Switzerland, and Japan. They usually find themselves in agreement with Mr. Greenspan.
For example, last week Karl Otto P"ohl, president of the Deutsche Bundesbank, proposed that the Group of Seven key industrial nations, in surveying one another's economies, should focus on monetary indicators as well as other statistics.
``The Bundesbank still regards the money supply as being more effective as a leading indicator of inflation than any commodity index,'' Mr. P"ohl told the Chicago Council on Foreign Relations.
At an April meeting in Washington, the finance ministers and central bank governors of the Seven accepted a proposal of United States Treasury Secretary James Baker III to develop a commodity price indicator for inclusion in a set of indicators used in this so-called ``surveillance exercise.''
The Seven - the US, Canada, Germany, France, Britain, Italy, and Japan - hope that what they learn from surveillance will be helpful in guiding and influencing national economic policies.
Asked about P"ohl's suggestion, Greenspan did not reject it. ``Monetary indicators are quite useful,'' he told the press after joining in a panel of central bankers at the annual International Monetary Conference of the world's top commercial bankers. Greenspan added that he follows the monetary data on a day-by-day basis.
During much of this decade, growth in the money supply in the United States has proved much less reliable as an indicator of future trends in the business cycle and inflation than in previous decades. But Greenspan says he still ``subscribes to evidence on economic change coming from monetary data.''
In Germany, the Bundesbank takes its targets for monetary growth most seriously. The money supply has been growing faster than targeted for some time now, and the Bundesbank doesn't like that. When it gets a chance, as it did last week, it will sell some of its massive dollar reserves on the foreign-exchange market. This has the dual advantage right now of reducing the German money supply and weakening the dollar. Germany wouldn't even mind if a dollar were to shrink in value from about 1.70 at present marks to 1.60 marks.
On balance, P"ohl said, Germany has benefited from the appreciation of the deutsche mark. Per capita real income has risen more than 8 percent in the last two years. The domestic bill for oil (which is priced internationally in dollars) has been cut in half.
``Therefore - I say that quite bluntly - we have neither an interest nor any reason to see our currency depreciating against the dollar or European currencies,'' P"ohl said. He was warning the foreign-exchange markets not to bid against the mark.
P"ohl and Greenspan tend also to agree on foreign-exchange policy. Where Mr. Volcker had begun to push for some mechanism for keeping exchange rates within a wide band, Greenspan has sought only ``stability.'' Conservatives love stability.