Business: Shrinking Role for U.S. Money

Frenzy in the gold and currency markets heightens an urgent issue

From the harried canyons of Wall Street to the outwardly calm boardrooms of Zurich, the world's financial centers experienced a whiff of panic last week. In two days of frantic trading, the price of gold on the London exchange soared a breathtaking $50 per oz. to $447 at one point; then it plunged back down almost as steeply, closing the week at $385. Silver, platinum and copper also gyrated wildly. Said a New York bullion trader: "The market's gone bananas."

The madness, as usual, was not over precious metals so much as money—specifically the battered U.S. dollar. Once again greenbacks were being sold off heavily in world markets in exchange for more robust currencies. Struggling to keep the buck from plunging further, which would hurt West German exports, the Bundesbank spent $1.2 billion in deutsche marks to buy up unwanted dollars last week. By happenstance, as the buck was worrying down again, central bankers, finance ministers and some 6,000 other leading moneymen were gathering in Belgrade, Yugoslavia, for the annual meeting of the 138-nation International Monetary Fund. Treasury Secretary G. William Miller and Federal Reserve Chairman Paul Volcker had hardly arrived when they were besieged with calls for U.S. action to stem the panic.

Volcker promptly returned to Washington to draft plans for what could be the second massive dollar-rescue program the U.S. has had to mount in eleven months. Among the steps under discussion:

LARGER GOLD SALES. The 750,000 oz. of Fort Knox bullion the U.S. now sells monthly might be doubled, in hopes that this might help drive prices down. Hinting at such a strategy, Under Secretary of the Treasury Anthony Solomon said last week that the gold boom was "extremely unhealthy for the world economy."

BROADER DOLLAR PROPPING. Until now, in their efforts to keep the dollar from falling too sharply against the muscular mark, the U.S. and West German central banks have confined their buck-bolstering efforts mainly to the New York and Frankfurt markets. Now they have agreed to intervene in all financial centers. Reason: the world money markets have become so sensitive and intertwined that a drop in, say, Hong Kong ripples rapidly throughout the world.

MORE "CARTER BONDS." Since last November the U.S. has sold $4.2 billion of so-called Carter bonds in West Germany in order to raise marks for the dollar defense. Plans have been worked out to issue more such bonds.