Mr. Wriston, I have a Wall Street Journal article headed "Foreign Money Trades Produced Almost 21 percent of Citicorp's 1978 Net." It goes on to say that this income came from taking currency positions in foreign exchange markets. Is this type of activity destabilizing and contributing to the general decline of the dollar? Is it setting off so-called vicious cycles in countries such as Germany, Japan and the United States?

I've been trotting around the world for thirty years, and it's my experience that whenever countries have poor fiscal and monetary policies, and their currencies start to depreciate, they always look for a cause outside themselves. Right now, they say, "Gee, it must be that currency traders don't like us." That's like saying the government bond market declined on Wall Street yesterday because Salomon Brothers[14]  doesn't like it.

The foreign exchange market is just too big for any one party to move it. If you took all the assets of all the U.S. banks together and sold them in the market, it would be less than one day's trading. So it's a myth that somebody can influence a market of that magnitude.

A few years ago, for example, the British were fighting to keep the pound from being devalued. They lost their entire reserves, borrowed a billion dollars from the International Monetary Fund, and lost that--all within a couple of months. So they devalued the pound anyway. It was only when the Fund put them on a sound monetary policy that the pound began to improve.

At any given minute, somebody changing a major currency position at the margin might move the exchange rate one fifth of a point, but that's the total extent of it. The market is just too big for even the governments' central banks to do much about it, as witness the floating exchange rates, the failure of the currency snake[15]  in Europe, and the failure of fixed exchange rates.

So, we don't take those charges too seriously. Chairman Miller[16]  testified before the Reuss Committee that the Fed saw no evidence whatsoever that the commercial banks had influenced the rate on the dollar. Mr. Carswell, the Deputy Secretary of the Treasury, testified also that the Treasury studies showed that the allegation of influence was not true.

[14] A leading Wall Street investment firm and a major underwriter and dealer in many types of securities, including government bond issues.

[15] An agreement among Germany, Belgium, Denmark, the Netherlands and Norway to maintain relatively fixed exchange rates in trade with one other, while allowing their currencies to float in unison against other currencies. Day-to-day fluctuations of member currencies within a permissible 4 percent band, when charted against non-member currencies, resemble the undulations of a snake in a narrow tunnel.

[16] G. William Miller, then Chairman of the Board of Governors of the Federal Reserve System.