	u s fed explores commodity basket index the complex task of wielding control over monetary policy in an increasingly fast moving global economy could be aided by tying policy to commodity prices the newest member of the federal reserve board says commodity prices are already considered by the fed in the making of monetary policy but they would be given a much greater role under an idea being floated by governor robert heller who joined the board last august he conceeds that much more study of the idea is needed but argues that such an arrangement particularly if it were adopted by other major industrial countries could reduce the volatility of exchange rates moreover it could help stabilize of the prices of commodities themselves slowing changes in inflation his idea which many conservative economists find appealing has some backing among board members appointed in recent years by president reagan it would complement the present system of opening or closing the monetary screws based on the pattern of inflation key indicators such as unemployment and the rise or fall of the money supply changes in the money supply can lead to changes in interest rates and affect economic activity directly discussed on and off for a long time the commodity concept is part of a growing search for a system that anchors monetary policy and widely fluxtuating currency prices to a more solid base what is needed is an anchor or reference point that can serve as a guide for both domestic and international monetary purposes says heller in the past this anchor was gold but the united states went off the gold standard because the global economy had vastly outstripped gold supplies a return to the gold standard is generally dismissed out of hand by most policymakers on the grounds that the largest producers of gold are the soviet union and south africa the so called fixed rate system scuttled in the early s is still considered unworkable in the present world but the current system of floating currencies in which currencies can fluxtuate widely adding vast pressures to the monetary system is also being widely questioned some have suggested that the system might benefit from a formal approach that mandates intervention by countries when currencies wander above or below agreed to levels but there are major problems with this also for one thing there is justifiable concern that countries might be relunctant to intervene if they felt it might be detrimental to their own domestic economy moreover some question whether concerted intervention can make much of an inpact if the overall market does not agree with the fundamental judgement the poorest countries have called for a monetary conference to work out a new system that not surprisingly helps them cope with their overpowering debt problems treasury secretary james baker the reagan administration s chief economic architect has preferred to use the so called group of five industrial countries or sometimes seven as a forum to work out cooperative agreements on currency and other economic matters he appears convinced that officials from west germany france britain japan italy and canada talking quietly behind closed doors can reached reasoned decisions away from public posturing the heller approach while extremely complex could have a profound impact on the system ideally stabalizing prices and international exchange rates as envisioned by heller a basket of say major commodities ranging from wheat to oil would be put together and prices would be measured on a regular basis in times of rising commodity prices monetary policy might be tightened and in times of falling commodity prices montary policy might be eased he says he notes that commodity prices are traded daily in auction markets and a commodity price index can be calculated on a virtually continuous basis moreover most commodity prices are produced consumed and traded on a world wide basis so that an index has a relevance for the entire world he says in addition commodity prices are at the beginning of the production chain and serve as an imput into virtually all production processes focusing on commodity prices as an early and sensitive indicator of current and perhaps also future prices pressures the monetary authorities may take such an index into account in making their monetary policy decisions he says however he says that any major change in a basic commodity such as occurred in oil during the s because of action by the opec cartel would have to be discounted in such a system he says the worst thing that could happen is to allow monetary policy to spread a freakish increase in one commodity to the rest of the system and to other commodities reuter 
