Clash over Stateless Cash

Struggling to crack down on currencies without a country

Faster than a speeding dollar. More powerful than a Krugerrand. Able to leap national boundaries with a single telex message. Look! In all the banks! It's a mark. It's a franc. No, it's supermoney!

It is also mysterious, pervasive and, in the cold eyes of Western policymakers, dangerous and disruptive to current at tempts to combat inflation. Supermoney is the immense and swift-moving pool of currencies deposited in banks outside their home countries-- and thus out of the control of any government. No body knows the total, but estimates run to $750 billion in ''offshore'' dollars and $250 billion in German marks and other, mostly European, money.

Uncertainty envelops the figures because nobody has ever seen or touched these ''Eurodollars'' or any of the other ''Eurocurrencies.'' They exist only as bookkeeping entries at banks in such hot-money havens as London, Luxembourg and the Cayman Islands.

British Novelist Margaret Drabble has described the Eurocurrencies as ''colorless, odorless, tasteless, unspendable money that passes in hieroglyphics through computers from one part of the globe to another.''

But international bankers find this money eminently spendable. If Exxon earns $100 million on sales in Europe and deposits it in a U.S. bank's Lon don branch, the money becomes Eurodollars, and the bank can lend it to some other company to build a plant in Turin or Trenton. Because the dol lars are outside the U.S., the bank is free from Federal Reserve rules that require it to keep as much as 16.25% of its U.S. demand deposits frozen rather than loaned out. Since this free dom lowers the bank's costs, it can pay perhaps 1% more interest on the dol lars deposited with it abroad than in the U.S., and it can offer loans at lower rates.

Eurocurrency began as an offspring of the cold war. After the 1956 Hungarian revolt, Soviet officials feared that the U.S. would seize the dollar deposits that Moscow had in New York City banks, so they transferred the cash to London. After moneymen began lending the state less dollars to companies in Europe, U.S. bankers and businessmen recognized a promising new source of capital. The lending of hard foreign currencies soon spread out from London. Among the first to handle such loans was the Soviet-owned Banque Commerciale pour I'Europe du Nord in Paris, which has the telex address "Eurbank." The offshore dollars thus were first called Eurobank dollars and then simply Eurodollars.

When Britain in the 1950s and the U.S. in the 1960s tried to bolster their sagging balance of payments by forbidding companies to export pounds or dollars to build plants abroad, businesses evaded the controls by borrowing in the Eurodollar market. The amount of Eurodollars available for borrowing sharply increased after the 1973-74 jump in oil prices. Members of the Organization of Petroleum Exporting Countries, unable to spend their petroprofits fast enough, began parking many surplus dollars in banks outside the U.S. Cartel members now have $74 billion in these Eurodollar deposits. Bankers also started lending large amounts of Euromarks and Euro-francs, which are West German marks and Swiss francs deposited outside their home countries.

This trillion-dollar capital market has won both ardent fans and impassioned opponents. In its defense, commercial bank ers note that the Eurocurrency market readily supplies investment funds for multinational corporations and provides the mechanism whereby the OPEC countries ''recycle'' their new riches to poor developing nations. OPEC'S leaders, ever fearful of placing too much money in any one country, prefer to keep their petrodollars in short-term Eurocurrency deposits free from the long arm of any government.

The OPEC funds are then lent out, often to impecunious oil importers.

On the other side, worried government bankers agree with Guido Carli, former chief of Italy's central bank, that Eurocurrencies have become ''the root of all evil in the international monetary system.'' In this huge worldwide market, currencies can be traded almost instantly and without restraint. This fosters monetary instability, and since the dollar is such a large part of the system, the instability can drive down the value of the buck. Private bankers and corporate finance officers can wildly exaggerate any currency's weakness and cause its value to plummet as they unload billions of uncontrolled Eurodollars with a few telex messages.

American officials argue that the international money has partially thwarted the Federal Reserve's attempt to slow U.S. inflation by limiting credit. When the Fed tightens money to restrict loans in the U.S., banks often bring back the funds from the Eurocurrency market. In the past six months $16.5 billion has flowed in, and even savings and loan associations now borrow Eurodollars to finance mortgages.

To crack down on such borrowing, the Fed this month began requiring that banks in the U.S., including U.S. branches of foreign banks, keep 8% of their new borrowings from the Eurodollar market in reserve; thus they can lend out only 92 1/2 of each new Eurodollar. But U.S. corporations have already found a way to avoid the regulations. They can borrow Eurodollars from a foreign bank at about 1% lower rates.

Attempts to impose further controls now seem inevitable. The Federal Reserve and West Germany's Bundesbank, which are leading the drive to put Eurocurrencies in leg irons, have already asked major countries to impose reserve requirements on foreign deposits with their banks, even if they are branches located outside the country. In addition, governments of ten leading industrial nations are trying to force all banks to show exactly how much money they have lent out abroad.

Private bankers warn that attempts to regulate will fail. If Eurocurrency lending is regulated in London or Luxembourg, they say, it will only sail away to Singapore or Bahrain, where no controls are likely to be imposed. If the Federal Reserve restricts U.S. bank branches, borrowers will simply shift their Eurodollar business to foreign branches. Bankers also insist that these markets will be needed to lend the developing countries the $50 billion they will need over the next year to pay their oil and industrialization bills.

If they simply borrowed, say, dollars in New York or pounds in London, they would be forced to pay stiffer rates than for Eurocurrencies.

The Eurocurrency market has been one of the most important financial innovations of the postwar era. By opening a vast new source of investment capital, it has furthered international trade and development. But the $1 trillion credit reserve floating free from national or international restrictions also breeds currency instability and inflation. Moneymen figure that they must now correct the problems the Eurocurrency market has created without, in the process, destroying this useful credit system--but nobody is yet sure just how to do that.

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