VOLCKER WARNS AGAINST SIZEABLE DLR DECLINE

  Federal Reserve Board Chairman Paul
  Volcker said a further large drop in the value of the dollar
  could be counterproductive for world economic growth.
      Testifying before the Senate Banking Committee, Volcker
  said that Europe and Japan were slowing exports and that growth
  in those countries was also decreasing.
      "In that kind of situation, further sizeable depreciation
  of the dollar could well be counterproductive," he said.
      Domestic expansion in foreign industrial countries has not
  been enough to offset the effects of slower exports, Volcker
  said.
      On the value of the dollar, Volcker said he could not say
  whether it should be higher or lower to restore balance in
  trade.
      "What we do know is that a substantial exchange rate
  adjustment has already been made," he said.
      "That adjustment should be large enough, in a context of a
  growing world economy and fiscal restraint in the United
  States, to support the widespread expectations of a narrowing
  in the real trade deficit in the period ahead," he said.
      Volcker said U.S. exports were now growing substantially
  while import growth should slow.
      Volcker said that to improve the trade deficit with a
  minimum of inflationary pressure, the United States would have
  to slow its spending growth.
      It would also have to achieve a better balance between
  investment and domestic savings if it wants to be able to
  dispense with foreign capital.
      "The constructive way to work in the needed direction would
  be to reduce our budget deficit, year by year, paving the way
  for improvements in our trade accounts," he said.
      Relying on depreciation of the dollar alone would risk
  renewed inflation, he said.
  

