Alan Greenspan: The New Mr. Dollar

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His successor, whose confirmation by the Senate should encounter no serious obstacles, also enjoys widespread respect in international economic circles, though he has no central bank experience. Moreover, his economic views are cut from essentially the same conservative, anti-inflationary fabric as Volcker's. As a Republican who has already served one Republican President, however, Greenspan is bound to face increasing pressure to bend his actions to political ends as the 1988 presidential election draws nearer. Indeed, some Administration critics argued last week that Greenspan's surprise appointment already amounted to just such political meddling. Said Pierre Rinfret, a former Nixon Administration economic adviser and now a Wall Street consultant: "It's a real watershed. President Reagan has now succeeded in turning the Fed into an arm of the Administration."

Most experts would consider that charge hyperbolic if not downright false. Still, the change at the Fed was unsettling enough to cause considerable zigzagging in world financial markets. Within minutes of Reagan's announcement, the Dow Jones average of 30 industrial stocks dropped 22 points, and bond prices suffered their worst one-day drubbing in more than five years. But the Dow bounced back by 42.47 the next day and closed on Friday at 2326.15, up 34.58 points for the week, while bond prices also recovered much of their loss. In Tokyo the U.S. dollar, which has lost about 30% of its value against the yen in the past 18 months, tumbled quickly from 145 to the dollar to 142.5 before rebounding to finish the week at 143.6. In Paris, the dollar dropped nearly 2% against the French franc in a matter of hours, but later gained back half of its lost value.

Verbal reaction followed the same down- and upbeat course. Nihon Keizai Shimbun, Tokyo's respected business daily, headlined an editorial VOLCKER'S RESIGNATION IS VERY REGRETTABLE. But Takeshi Ohta, deputy governor of Japan's central bank, said with evident satisfaction, "Mr. Greenspan is the best successor that the President could have chosen." British Chancellor of the Exchequer Nigel Lawson called Greenspan's appointment an "excellent choice." In the U.S., where Greenspan is much better known, most economic thinkers and money managers hailed the Fed newcomer -- once they had regretted Volcker's departure. Said Frederick Joseph, chief executive officer of the Drexel Burnham Lambert investment firm: "Volcker had credibility. Greenspan will have to grow into it." Agreed Alice Rivlin, director of economic studies at the Brookings Institution and a fellow member of TIME's Board of Economists: "Volcker had the confidence of the world. That will be the hardest thing for Greenspan to build."

Amid the welcomes there were a few voices of caution. Henry Kaufman, a partner at the Salomon Brothers investment firm and one of Wall Street's most famed Cassandras, warned that Greenspan's appointment in the short haul "is a negative both for the dollar and for interest rates." Allen Sinai, chief economist at the Shearson Lehman Brothers investment house, noted that Greenspan "does not have much experience in international finance."