VOLCKER WARNS AGAINST SIZEABLE DLR DECLINE Federal Reserve Board Chairman Paul Volcker said a further large drop in the value of the dollar could be counterproductive for world economic growth. Testifying before the Senate Banking Committee, Volcker said that Europe and Japan were slowing exports and that growth in those countries was also decreasing. "In that kind of situation, further sizeable depreciation of the dollar could well be counterproductive," he said. Domestic expansion in foreign industrial countries has not been enough to offset the effects of slower exports, Volcker said. On the value of the dollar, Volcker said he could not say whether it should be higher or lower to restore balance in trade. "What we do know is that a substantial exchange rate adjustment has already been made," he said. "That adjustment should be large enough, in a context of a growing world economy and fiscal restraint in the United States, to support the widespread expectations of a narrowing in the real trade deficit in the period ahead," he said. Volcker said U.S. exports were now growing substantially while import growth should slow. Volcker said that to improve the trade deficit with a minimum of inflationary pressure, the United States would have to slow its spending growth. It would also have to achieve a better balance between investment and domestic savings if it wants to be able to dispense with foreign capital. "The constructive way to work in the needed direction would be to reduce our budget deficit, year by year, paving the way for improvements in our trade accounts," he said. Relying on depreciation of the dollar alone would risk renewed inflation, he said.