IN London's financial district they are calling it a defining moment.
Commenting on the events of Sept. 16, when the British pound had been driven out of the European Exchange Rate Mechanism, Mark Clarke, chief currency dealer in London for Bank of America, told a television interviewer he had made "about 10 million British pounds " (US$17 million) for his employer in eight hours' trading.
Mr. Clarke's innocent admission that Britain's Black Wednesday had enabled his bank to make a big profit threw fuel on a fire already starting to burn merrily.
James Callaghan, the former British prime minister, spoke of "the dangerous power" of banks and other currency traders to "dictate to governments."
Lord Callaghan called for curbs on global electronic trading that routinely turns over an estimated $1 trillion in foreign currencies virtually every day.
As he spoke, shell-shocked British government ministers were trying to recover their bearings after sterling's forced devaluation and market traders were preparing to launch an attack on the French franc.
A joint effort to defend the franc by the Bank of France and the Bundesbank appeared to have succeeded where a week earlier the Bank of England had failed. But saving the franc was a close-run thing, leaving political leaders and financial experts to argue about the best way of controlling currency markets.
"Capital markets have grown dramatically in size and complexity, well beyond the resources governments can bring to bear to control them," said Nicholas Brady, the US treasury secretary. He called for a study of how world markets operated under modern conditions.
Intervention by the Bank of England to the tune of 15 billion British pounds had no more impact than the British government's hike in interest rates from 10 percent to 15 percent. The pound succumbed to irresistible market pressure.
Speculators occasionally see an occasion to force a currency into devaluation by heavy selling, then take their profits by buying it back at a cheaper price. Usually the currency is widely seen as overvalued because of past inflation. But the idea that greedy dealers have been responsible for the mayhem on the currency exchanges is disputed by Gavyn Davies, chief economist of Goldman Sachs in London.
"The hectic trading we have seen represented the legitimate activities of many people, for example pension fund managers, trying to do their best by investors," he says.
Mr. Davies is just as adamant that the solution to the problem is not a return to exchange-rate controls, which Britain abolished in 1979 but Spain just imposed in a bid to support the peseta.
Callaghan's answer to the problem is a tax on foreign-exchange dealings - an idea put forward 20 years ago by US economist James Tobin. "This would make dealers hesitate before they rushed to buy or sell. It would put a brake on the market," Callaghan said.
Christopher Allen of the London Business School, says such a tax "would make currency-switching expensive and help to curb short-term speculation, but to be effective a tax system would have to be applied in all markets everywhere." It is hard to see that happening in a competitive global environment, he says.
In the joint French-German defense of the franc, central bank authorities in Paris and Frankfurt combined massive currency intervention and a 2.5-percentage- point hike in French interest rates. The Bank of Paris and the Bundesbank were reported to have spent $37 billion between them to bolster the franc.
As the assault on the franc gathered momentum, Michel Sapin, France's finance minister, said of currency traders: "During the French revolution such people were known as agioteurs [speculators] - and they were guillotined."
Sir Edward Heath, another former British prime minister, says that with the single European currency outlined in the Maastricht Treaty the problem would disappear "because there would be nothing to speculate against."
But fellow Conservative David Howell, chairman of the House of Commons foreign affairs committee, says a single currency is "an unattainable objective."
"One of the lessons of the last week or two has been that the best defense against speculators is a strong economy," he says.
That idea is endorsed by John Smith, leader of the opposition Labour Party. "The pound's defenses were weak because the economy is weak," Mr. Smith says. "Until that changes, we shall continue to be vulnerable." -PATHNAME- /usr/local/etc/httpd/plweb/DBGROUPS/paper/database/tape/92/sep/day30/30071.