MONEY: Bucking Up The Dollar

If the dollar keeps diving, it could pull several of the world's major economies down with it. That realization was behind the urgent meeting in Paris over the weekend of finance ministers and central bankers from the Group of Seven -- the U.S., West Germany, Japan, Britain, France, Italy and Canada -- to discuss ways of moderating currency swings. For the U.S., another goal of the session was to persuade Japan and West Germany to stimulate their economies. That would boost their imports of American products and help ease the U.S. trade deficit, which reached a record $170 billion last year. Higher exports would also spur the sluggish U.S. economy. The gross national product grew at an annual rate of only 1.3% in the fourth quarter of 1986, the Government reported last week.

Pressing the American case at the G-7 meeting were Treasury Secretary James Baker and Federal Reserve Board Chairman Paul Volcker. Before leaving for Paris, Volcker told the Senate Banking Committee he hoped the session would "give a little more impetus" to efforts to stabilize the currency markets. But, he later added, "I wouldn't say this meeting itself will do it."

Volcker argued that the dollar has already fallen far enough. While its decline promises to help narrow the trade deficit, a continued plunge could send import prices surging and spark increased inflation. That is one threat the Fed chairman cannot afford to underestimate.