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Rubin: No to currency band
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February 17, 1999: 2:16 p.m. ET
Prior to G-7 summit in Bonn, Treasury chief rejects call for dollar-yen-euro band
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NEW YORK (CNNfn) - U.S. Treasury Secretary Robert Rubin debunked the need for a trading band governing the world's major currencies Wednesday, as calls from Europe and Japan mount for a new currency system that could help fortify ailing world markets.
Rubin spoke to reporters in Washington just days before heading to Bonn for a weekend meeting of top officials from the Group of Seven industrialized nations.
The meeting could become the venue for a tangled debate about how to revive world economic growth, particularly about whether to set up currency bands to rally pain-stricken markets.
Battle of the band?
On one side of that debate are Rubin and European Central Bank officials, who claim such a policy would be ineffective and would lead to currency speculation of the type that hit several European currencies in the early '90s.
Squaring off against them, and floating the notion that currency bands could be helpful, are political leaders and financial counterparts in Germany, France and Japan, among others.
Press reports Wednesday suggested that Rubin, heading up a team of U.S. officials, will be at loggerheads with his counterparts about how to rectify ailing world markets.
Expected to top the agenda of controversial issues is exchange-rate policy. France, Japan, and Germany reportedly favor narrower bands in which their currencies - Europe's new euro and the Japanese yen - can fluctuate.
According to the French business daily Les Echos Wednesday, President Jacques Chirac said "growth comes through stability between our currencies" - speaking in reference to the U.S. dollar, Japan's yen, and Europe's euro.
Separately Wednesday, in an interview with German newspaper Frankfurter Allgemeine Zeitung, Otmar Issing, ECB chief economist, said that recent proposals for a 10-15 percent band between the yen, euro and dollar were misguided.
"A regime of fixed foreign-exchange rates and obligations to intervene would encroach upon the statute of the ECB and the priority of price stability," Issing said in the interview.
While admitting there is a lure of stable currency exchange, Rubin questioned whether it was practicable as policy.
While in the best-case scenario, stable currency-exchange rates are economically useful, Rubin admitted, "when you start talking about measures such as bands, you run into a whole host of other issues."
Hopes for unity elsewhere
Aside from those possible entanglements, Rubin was optimistic that the G-7 will reach agreement about International Monetary Fund plans to improve the reporting of a country's assets and liabilities, known as the Special Data Dissemination Standard.
"Had these kinds of requirements been in place before the current crisis began in 1997, the flows of capital might well have slowed at a much earlier stage, substantially reducing the severity of the crisis," Rubin said.
Currency troubles in Thailand last year set off a wide crisis across many emerging markets in Southeast Asia. Since then, Russia and Brazil have also fallen victim to economic turmoil.
Rubin was also upbeat about prospects for further coordination among financial authorities through a Bundesbank plan to form a Financial Stability Forum.
And coordinating their efforts about the high-risk investment vehicles known as hedge funds - which threatened U.S. markets last autumn - would be on the table.
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Treasury Department
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