Battling the Mighty Dollar

As a key player in the drive to bring the highflying U.S. dollar down to earth, Fred Springborn starts his day early and ends it late. Arriving at his ^ cramped Treasury Department office at about 6 a.m., the foreign-exchange specialist scans a Reuters video monitor through bleary eyes, checking the latest U.S. dollar prices from Bonn to Bangkok. After conferring by phone with colleagues at the Federal Reserve Bank of New York, Springborn heads down two flights of stairs to brief his boss, Treasury Secretary James Baker, who normally arrives before 7:30. In consultation with Federal Reserve Chairman Paul Volcker and senior Treasury officials, Baker decides whether to sell dollars to lower the value of the U.S. currency around the world, which would help beleaguered U.S. exporters and slow the loss of manufacturing jobs.

Springborn has been an early riser for years, but there is now special urgency to his work as director of the Treasury's office of foreign-exchange operations. Since last week's meeting of finance ministers from the five largest industrial democracies, reining in the dollar has become a matter of passionate U.S. concern. Unlike stocks, bonds or even pork bellies, currencies are not traded in one or two large buildings in a few major cities. The foreign-exchange market is a worldwide network of private banks, linked by phones and computers, that buy and sell money round the clock. So vast and far flung is this global system that from $150 billion to $200 billion worth of currencies changes hands each day. Daily trading on the New York Stock Exchange, by contrast, typically totals about $4 billion worth of shares.

If Washington is the headquarters of U.S. efforts to intervene in foreign- exchange markets, the fortress-like Federal Reserve Bank of New York is the front line. On the seventh floor of the bank's Italianate building on Wall Street, six currency traders carry out the Treasury's instructions. Hunched over a circular desk crowded with jangling phones, they buy and sell dollars at U.S. banks while glancing regularly at overhead monitors that flash currency transactions. "The Fed people just love intervening," says a former Treasury official. "They're like little kids with a new toy."

Throughout the day, Fed officials in New York City consult with their Washington counterparts, discussing trading activity and receiving new instructions. At 2:30 every afternoon, the Treasury and Fed offices in New York and Washington hold a conference call.

As they monitor the markets, officials watch for signs that intervention may be needed. Sharp changes in the dollar's price can lead to orders to buy < or sell. Traders also wage psychological warfare. They did that last week simply by calling private banks and asking for the latest currency quotes. The jittery dealers on the other end took the calls as signals that the Fed was in the market, and rushed to sell more dollars.

The U.S. traders are careful to stay in touch with their colleagues in other countries, comparing rates and making their interventions known. Each country naturally focuses on its own money. Last week the Bank of Japan snapped up yen to boost their value, while the West German Bundesbank concentrated on buying deutsche marks. The Federal Reserve swapped dollars for both currencies to support the actions of Tokyo and Bonn.

Such moves can cause bitterness if they are not carefully coordinated. The U.S. and six European allies last February launched a joint intervention that brought the dollar down slightly from its all-time peak. But while the Bundesbank put $4 billion into a $10 billion international fund to buy currencies, Washington supplied only $600 million. That left the Germans vulnerable to a big loss when the price of the dollar rose again this summer, lowering the value of the marks that they had bought. Now Bonn wants assurances that the U.S. will do its share to finance the current fund, which is certain to be larger.

Whatever else it accomplishes, last week's intervention may mark a new epoch in global monetary relations. The currency gyrations since 1973, when the U.S. and its major trading partners abandoned fixed exchange rates and allowed money prices to float, have disrupted international finance and trade. Regular intervention would make volatile swings much less likely. Says Robert Hormats, an Assistant Secretary of State in the first Reagan Administration and now a vice president of the Goldman Sachs investment-banking firm: "What we are seeing may be the beginning of a new era--one of managed rather than freely floating rates."