By Alan Friedman

Published: September 23, 2000

PRAGUE The world’s leading central banks stunned currency markets Friday with a joint intervention to rescue Europe’s ailing single currency.

The buying spree was unleashed in six separate waves throughout the day, a banker familiar with the action said. The move drove the euro up to nearly 90 U.S. cents from 86 cents.

Traders were caught off guard because few had expected the United States to join the central banks of Europe, Japan and England in a concerted action.

Any intervention, if it came, was not expected before the meeting this weekend of the Group of Seven leading industrialized nations here.

But the move’s success was thrown into question late Friday when the U.S. Treasury secretary, Lawrence Summers, who was widely known to be reluctant to intervene, repeated in Washington the long-standing U.S. policy on the dollar. As I have said many times, a strong dollar is in the national interest of the United States, he said.

His comment, which seemed to some traders to contradict the intent of the intervention, caused the euro to slip below 88 cents. In 4 p.m. trading Friday, it was at 87.88 cents.

The market viewed Mr. Summers’ remarks as counterproductive, even destructive of the intervention, said Avinash Persaud, director of research at State Street Bank in London. The market is saying that if nothing has changed in U.S. policy, then we will ignore the intervention.

As a result, Mr. Persaud and other analysts say, the G-7 will need to intervene several times more to keep the euro from sliding again.

After the Summers statement, Mr. Persaud said, the only way for this to succeed is if the intervention is repeated over several days, until the market gets the message.

Mr. Summers and Alan Greenspan, the chairman of the Federal Reserve, agreed to the coordinated currency move because they recognized the political and financial benefits in recent weeks, according to a source close to the intervention.

The U.S. officials were motivated to act largely because U.S. multinational companies with significant European earnings have been hurt by the strength of the dollar. The negative impact on profits was beginning to affect sentiment on Wall Street.

Mr. Summers and Mr. Greenspan were also persuaded by concern that the weak euro was helping fuel the soaring U.S. trade deficit as cheap foreign goods significantly raised the level of U.S. imports, the source added.

The U.S. officials also were worried that the euro’s weakness, combined with high energy costs, posed a systemic risk to world financial markets and could set off a chain reaction so volatile that it had the potential to threaten global economic stability, the source said.

In Washington, Mr. Summers noted that the recent rise in oil prices was worrying for consumers and for businesses. But he indicated some hesitation about dipping into U.S. emergency oil reserves.

We need to be prudent in using the strategic reserve, Mr. Summers said.

Vice President Al Gore, the Democratic nominee for president, this week proposed tapping the oil reserves to push down fuel prices, a plan that was denounced by his Republican opponent, Governor George W. Bush of Texas.

After the currency intervention, the European Central Bank, U.S. Federal Reserve, Bank of Japan and Bank of England, the world’s four most powerful central banks, said in a prepared statement they had acted because of their shared concern about the potential implications of recent movements in the euro exchange rates for the world economy.

The move came on the 15th anniversary of a historic agreement to intervene in the foreign exchange markets, the so-called Plaza Accord.

On Sept. 22, 1985, the world’s top finance ministers and central bankers met in secret at the Plaza Hotel in New York to coordinate a depreciation of the dollar, which had risen so much that it was making U.S. exports too expensive for foreign buyers.

Finance ministers from the G-7 countries were pleased that the intervention Friday had been carried out without any leaks and marked a rare example of the world’s leading nations flexing their collective muscle in currency markets, the source said.

Earlier in the week, a top IMF official, Michael Mussa, called explicitly for coordinated G-7 intervention to aid the euro, and Horst Koehler, the new IMF managing director, advised Europeans to stop making contradictory public declarations about the euro.

Less talk, and more coordination that is the issue, Mr. Koehler said Wednesday, adding that a joint action to prop up the euro could succeed, but without talk.

He added: Just do it, and then talk

If the intervention succeeds in keeping the euro at around 89 to 90 cents, and if the G-7 makes clear its determination to work with OPEC to increase production so that oil prices drop below dollars 30 a barrel in the coming months, analysts say the feared damage to world economic output could be limited.

In other currency trading, the dollar rose to 107.990 yen, compared with 106.670 yen late Thursday, and fell to 1.7311 Swiss francs from 1.7663 Swiss Francs. The pound rose to dollars 1.4580 from dollars 1.4373

The pound has posted strong gains this week as the outlook for British industry has improved. On Thursday, the Confederation of British Industries said manufacturers’ order books had improved.