How Bonn keeps rein on inflation
Frankfurt, West Germany
WEST Germany, proclaimed Dr. Ruediger von Rosen, not quite clasping his hands above his head, is ''the world champion in inflation rates.'' Consumer prices in West Germany as of October were 2.1 percent above the level 12 months earlier, the best performance among Western industrial nations. That is a fraction better than Japan's 2.2 percent or Switzerland's 2.7 percent and just half the United States inflation rate of 4.2 percent.
For a high-ranking central bank official like Dr. von Rosen, that is something to crow about. Under the West German Constitution, the Bundesbank has the duty to protect the currency, and Germany has done better in the past decade in this regard than any other member of the Organization of Economic Cooperation and Development.
Most of Germany's current inflation, added Dr. von Rosen, is due to higher prices for imports. As the US dollar strengthened against the German mark in the past year, Germans had to pay more for imported goods.
The German equivalent of a Council of Economic Advisers, the so-called ''five wise men,'' have predicted 2 percent inflation in 1985.
''That seems quite realistic from the standpoint of the Bundesbank,'' said Dr. von Rosen.
One reason for his confidence is the Bundesbank's success in meeting its monetary goals. The Bundesbank this year set a target for growth in its money supply (''central bank money stock'') of 4 to 6 percent, and growth has actually been about 5 percent. Moreover, the central bank council earlier this month set a slightly lower target - 3 to 5 percent - for the coming year.
''We have a good chance that development of the monetary aggregates will be similar next year,'' noted Dr. von Rosen. Most economists figure that the level of growth in a nation's money supply is crucial to its pattern of inflation.
Further, if the deutsche mark should strengthen on the foreign-exchange markets, Germany could experience even less inflation.
Dr. von Rosen and other Bundesbank officials are troubled by the extraordinary strength of the dollar. ''The dollar ignores the United States balance-of-payments and budget deficits,'' he said.
Two elements of this strength worry this spokesman for the central bank.
First, it makes many American manufactured goods so uncompetitive in world markets that it could stir up protectionism in the US.
Second, if the dollar should plunge in value too rapidly, it might disrupt the European monetary system. Germany has had much less inflation than France, and at some point increased speculation might force another devaluation of the franc within this system of semi-fixed exchange rates.
To discourage speculators from pushing the dollar too high (and thus positioning the dollar to tumble even farther at some point) the Bundesbank frequently sold dollars on the foreign-exchange markets this past fall. Its biggest move was just before the annual meeting of the International Monetary Fund in late September, when it sold $450 million in one day.
''Since then we have shown sometimes the flag,'' said Dr. von Rosen.
One purpose for the intervention in the foreign-exchange markets is to warn speculators and others that the dollar can go down in value as well as up. It creates some uncertainty in their minds.
But, Dr. von Rosen insists, the Bundesbank's intention is not to give price guidelines to the exchange market. ''We have no exchange-rate policy,'' he said. ''We know we cannot stand against the wind.'' By that, he meant that not even the Bundesbank, with its huge reserves, could prevent a basic increase in the value of the dollar.
Another goal is just to get rid of dollars.
''We have so large monetary reserves,'' said Dr. von Rosen, ''we don't like to see them growing.''
The Bundesbank has some $36 billion in international monetary reserves (excluding gold), of which $28.5 billion is in dollars. Around $3 billion a year keeps coming in as interest on its invested reserves. West Germany also earns some billions of dollars from the American troops stationed on its soil. The nation is enjoying a surplus in its balance of payments (current account) of more than $3 billion, some of it dollars.
This year, noted Dr. von Rosen, the Bundesbank has had some 15 billion deutsche marks of ''new'' dollars ($4.6 billion) to sell on the foreign-exchange markets. Whenever the dollar is especially strong on those markets, the Bundesbank is just likely to unload some tens of millions of its piled-up dollars.
Further, the Bundesbank has been reaping enormous profits from its reserves and foreign-exchange operations. This has helped the government achieve its lowest budget deficit ever, a deficit equivalent to 2 percent of total national output.
Dr. von Rosen still has one thing puzzling him - the strength of the dollar. ''Sooner or later the markets must become aware that the United States is getting indebted to the rest of the world,'' he says.