WORLD MONEY SYSTEM IS FRAGILE, REPORT SAYS

WORLD MONEY SYSTEM IS FRAGILE, REPORT SAYS

Global economic upheavals such as the October stock market collapse show that the world urgently needs a new monetary system, according to a study released Monday.

The study, sponsored by the Institute for International Economics, concludes that the international agreements by which the Reagan administration has tried to manage the dollar over the past three years have proven agonizingly fragile.The agreements didn't go far enough because of political obstacles in the United States, Japan and West Germany, the study says.

The possibility of backsliding, over-committing or reneging has continually threatened the credibility of these deals, said Yoichi Funabashi, the study's author.

The downward pressure on the dollar and efforts by the Federal Reserve to prop up its value by raising U.S. interest rates last fall were two of the factors cited in the Oct. 19 stock market crash.

Financial markets remain convinced that the dollar will have to fall farther to correct the trade deficits.

The United States has become the world's largest debtor nation as Americans have transferred billions of dollars into the hands of foreigners to pay for Japanese cars, Korean television sets and French wines.

America's new status as a net debtor makes it imperative for the new administration to intensify efforts at international cooperation, the study said.

The study recommended building on the approach established by the Louvre agreement, by which each nation's currency is placed in a so-called target zone and any time the currency moves outside the agreed-upon zone, nations launch actions including intervention to bring it back into line.

The study said the United States bargaining position would be strengthened if the administration made a greater effort to include Congress in the economic decision-making process since such needed changes as reducing the federal budget deficit can only be accomplished through congressional action.

The study, based on interviews with many of the officials involved, reveals some key details of the secret negotiations over the past three years.

The Louvre accord, signed in Paris in February 1987, sought to stabilize exchange rates, keeping the dollar from falling by more than 5 percent from a base of 153.5 yen to the dollar.

The dollar has continued to fall, however, and now stands around 125 yen, down almost 50 percent from its peak of 263.7 yen in February 1985.

Mr. Funabashi, who has covered economics for 20 years, is the deputy editor of economic affairs for the Japanese newspaper the Asahi Shimbun. He wrote the dollar study during a year in which he was a visiting fellow at the Institute for International Economics, a seven-year-old Washington think tank funded by grants from various foundations including the German Marshall Fund and the Ford Foundation.