AFTER long efforts by the Reagan administration to hold the value of the dollar down - to aid US exports - the dollar has made a surprising comeback. Is this a good thing? Economists are arguing both sides of the issue. ``It is very troubling,'' says C. Fred Bergsten, director of the Institute for International Economics in Washington. The White House agrees, a spokesman calling it ``a matter of concern.''
Contrariwise, Lincoln Anderson, a Wall Street economist, comments: ``I don't think it is an immediate concern.''
In Switzerland, a central banker complained not so much about the level of the dollar as its price volatility. ``The speed causes central banks to react more than the level,'' says Werner Abegg, a spokesman for the Swiss National Bank.
What has caused the dissension is a 10 to 15 percent jump in the value of the dollar (depending on the index chosen) against other currencies since the fourth quarter of 1988. It has prompted central banks of the industrial nations to sell billions of dollars on the foreign-exchange markets in recent days in an attempt to weaken the currency, but without much success. Those dollars have been snapped up by foreigners for the purchase of US investments.
William Sterling, an international economist with Merrill Lynch Capital Markets in New York, says that industrial-nation leaders ``don't have the political will or policies to defend currencies.''
Paul Volcker, former chairman of the Federal Reserve Board, questioned whether central bank intervention itself was wise.
``There is no particular objective to see a weaker dollar,'' he told an international management symposium at St. Gallen University in Switzerland. ``We should let it sort itself out in the markets.''
The US dollar wasn't supposed to flex its muscle this year. It was expected to be limp as a rag, thereby encouraging exports and discouraging imports so as to reduce the US trade deficit.
Instead, the supposed weakling, the Charles Atlas of currencies, has been kicking sand at the Japanese yen, the West German mark, and some other major currencies rather than vice versa.
The dollar's rise has some immediate positive effects in the US. It improves the outlook for lower inflation and thus for declining interest rates. There is some speculation that the Federal Reserve System might consider easing credit in the US in order to slow the increase in the dollar's value. It would pump more dollars into the economy, presumably also adding to the supply of dollars on the foreign-exchange markets.
But Fed governor Robert Heller commented on that suggestion Monday: ``Inflation isn't dead. Inflation is still a key factor to be considered in monetary policymaking.''
Nonetheless, the slowing of the US economy in recent months means that a slackening of the Fed's tight-money policy could be consistent with both domestic and international economic goals. Michael Keran, chief economist for the Prudential Insurance Company of America, has been expecting the Fed to ease in July or August when the slowdown has become more evident in the economic statistics. But the dollar's situation might make the Fed willing to move earlier, he says.
Abroad, the strength of the dollar prompts worries about inflation, since oil and many other imported commodities are priced in dollars. It could also stimulate the European economy.
``It could heat things up too much,'' says Mario Haller, president of Sasea Financiere SA, a Geneva-based merchant bank.
``If the dollar is up, the whole world economy will have problems,'' warns Percy Barnevik, president of ABB Asea Brown Boveri Ltd., a Swiss-based manufacturing company.
Werner Struckmann, vice-president of UHAG Uebersee-Handel AG, a Swiss trading company, expects his company's sales of heavy equipment to Asia to become stronger after a few months because of the dollar's strength.
Mr. Bergsten's worries about the dollar are long term, depending on the dollar remaining strong for an extended time. In a year or two, he says, the more expensive dollar would result in a renewed deterioration of the US trade deficit. At some point, foreign investors could lose confidence and refuse to put more money in dollar investments. This would make it harder to finance the US budget deficit and result in higher American interest rates. The dollar would plunge on the foreign exchange markets.
Bergsten recalls the spring of 1987, when US long-term interest rates quickly rose from 6 percent to 9 percent after the Japanese hesitated to put money in US bonds when the dollar was falling. That trend prompted the US and other industrial nations to agree at a meeting in the Louvre in Paris to defend the dollar.
Should the trade deficit grow again, it could revive US trade protectionism, he says. He even speculates about the possibility of the US imposing a general surcharge on imports.
However, Mr. Anderson of Bear, Stearns & Co. sees such arguments as ``wrong,'' saying he does not believe the US trade deficit can or should be eliminated. It is necessary as an offset to capital inflows. Foreigners want to buy US assets because they offer a better return when that return is adjusted for inflation and other risks. These foreign investments, Anderson says, have helped push the unemployment rate in the US down toward 5 percent.
Some Americans have become alarmed at the Japanese and other foreigners buying up US real estate and other investments.
Anderson calculates that foreigners own only ``a lousy 2 percent'' of the $15 trillion in assets in the US. In this calculation he subtracts American direct investments abroad from foreign investments in US plant and equipment.
``The problem is blown way out of proportion,'' he says.
Whether the dollar is fundamentally overvalued or undervalued is controversial. Fritz Leutwiler, former head of the Bank for International Settlements, says it is ``too high.'' Mr. Abegg of the Swiss National Bank holds it was undervalued earlier and may have overshot its ``natural level'' in the recent run-up.
The current strength of the dollar, economists explain, arises from several factors:
A fall in long-term interest rates in the US. The return on 30-year Treasury bonds fell from 9.1 percent to 8.6 percent in the past three weeks. Foreign investors have been buying up such bonds in a big way in the hope of making capital gains as their price rises.
A strong rise in the price of crude oil. Although this raises the cost of imported oil in the US, it hurts even more the economies of such countries as Japan, France, and West Germany, which have either no domestic oil or only tiny amounts. Exchange rates adjust to reflect this improvement in the US economic position.
Political turmoil abroad. US Treasury Secretary Nicholas Brady told the Milwaukee Journal: ``You have a million Chinese rioting in the streets. You have NATO in an unsettled state of affairs. You have, in Japan, lack of clear definition of leadership really for the first time since the Second World War.''
There has been some improvement in both US deficits. Federal revenues in April were $18 billion above those of the same month in 1988. The underlying trade deficit dropped about $3 billion in the first quarter of this year from the previous quarter.