How to Move the Exchange Rate If You Must : The Diverse Practice of Foreign Exchange Intervention by Central Banks and a Proposal for Doing It Better
The paper is about the art of exchange rate management by central banks. It begins by reviewing the diversity of objectives and practices of central bank intervention in the foreign exchange market. Central banks typically exercise discretion in de...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2013/05/17751131/move-exchange-rate-must-diverse-practice-foreign-exchange-intervention-central-banks-proposal-doing-better http://hdl.handle.net/10986/15551 |
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okr-10986-15551 |
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oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English en_US |
| topic |
ACCUMULATION OF RESERVES ADVANCED ECONOMIES ADVANCED ECONOMY ARBITRAGE ASSET POSITIONS ASSETS AUCTION AUCTION AMOUNTS AUCTIONS BANK POLICY BONDS BROKERS BUFFERS CALL OPTIONS CAPITAL ACCOUNT CAPITAL FLOW CAPITAL FLOWS CAPITAL INFLOWS CAPITAL OUTFLOWS CENTRAL BANK CENTRAL BANK POLICY CENTRAL BANKS COMMODITY COMPETITIVE MARKET CONSUMERS CRAWLING PEG CREDIBILITY CREDIT GROWTH CURRENCY BASKETS CURRENCY CONVERTIBILITY CURRENCY CRISES CURRENCY DEPRECIATION CURRENCY MARKETS CURRENCY SWAPS CURRENT ACCOUNT CURRENT ACCOUNT SURPLUSES DEBT DEBT CRISIS DEBT REPAYMENT DEBT SERVICING DEFLATION DEMAND CURVE DEPRECIATIONS DEVALUATION DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DOLLAR EXCHANGE RATE DOMESTIC CREDIT DOMESTIC CREDIT GROWTH DOMESTIC CURRENCY DOMESTIC LIQUIDITY ECONOMIC CRISIS ECONOMIC OUTLOOK ECONOMIC POLICY EFFECTIVE EXCHANGE RATE EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS EQUILIBRIUM EXCESS DEMAND EXCHANGE RATE EXCHANGE RATE APPRECIATION EXCHANGE RATE FLUCTUATIONS EXCHANGE RATE LEVEL EXCHANGE RATE LEVELS EXCHANGE RATE MANAGEMENT EXCHANGE RATE MISALIGNMENT EXCHANGE RATE MOVEMENTS EXCHANGE RATE OVERVALUATION EXCHANGE RATE PEGS EXCHANGE RATE POLICIES EXCHANGE RATE REGIME EXCHANGE RATE REGIMES EXCHANGE RATE STABILITY EXCHANGE RATE VOLATILITY EXCHANGE-RATE EXPECTED RETURN EXPORT EARNINGS EXPOSURE EXTERNAL COMPETITIVENESS EXTERNAL DEBT FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL MARKET FINANCIAL STABILITY FINANCIAL STRESS FLEXIBLE EXCHANGE RATE FLEXIBLE EXCHANGE RATES FLOATING EXCHANGE RATE FLOATING EXCHANGE RATE REGIME FLOATING EXCHANGE RATES FOREIGN CURRENCY FOREIGN CURRENCY BORROWING FOREIGN EXCHANGE FOREIGN EXCHANGE MARKET FOREIGN EXCHANGE MARKET INTERVENTION FOREIGN EXCHANGE MARKETS FOREIGN EXCHANGE RESERVE FOREIGN EXCHANGE RESERVES FOREIGN TRADE FORWARD MARKET FORWARD MARKETS GDP GOLD GOVERNMENT BONDS HOLDING HOLDINGS IMPERFECT COMPETITION INCOME INCOME FLOWS INFLATION INFLATION RATE INFLATION TARGET INFLATION TARGETING INFLATION TARGETS INSTRUMENT INSURANCE INSURANCE COMPANIES INTEREST PARITY INTEREST RATE INTERNATIONAL BANK INTERNATIONAL CREDIT INTERNATIONAL MARKET INTERNATIONAL RESERVES INTERNATIONAL SETTLEMENTS INVESTING INVESTMENT PERIOD LIQUIDITY MARKET CONDITIONS MARKET CONFIDENCE MARKET CONTAGION MARKET EXCHANGE RATE MARKET MICROSTRUCTURE MARKET PARTICIPANTS MARKET VALUES MICROSTRUCTURE MONETARY AUTHORITIES MONETARY POLICIES MONETARY POLICY MONETARY POLICY FRAMEWORK MONEY MARKET MONEY SUPPLY NASH EQUILIBRIUM NET CAPITAL NOMINAL ANCHORS NOMINAL EXCHANGE RATE OIL EXPORTS OLIGOPOLY OPPORTUNITY COST OPPORTUNITY COSTS OTHER CURRENCIES OUTSTANDING STOCK PAYMENT OF INTEREST PEG PEGS PENSION PENSION FUND PORTFOLIO POST-CRISIS PERIOD PRICE INCREASES PRIMARY COMMODITY PRODUCT MARKETS PUBLIC DEBT PUT OPTIONS REAL ESTATE RELATIVE EXCHANGE RATE REPO REPO WINDOW REPOS RESERVE RESERVE ACCUMULATION RESERVE BANK RESERVE CHANGES RESERVE CURRENCIES RESERVE HOLDING RESERVE HOLDINGS RETURN RETURNS SHORT-TERM CAPITAL SHORT-TERM INTEREST RATES SPECULATIVE ATTACKS SPEED OF ADJUSTMENT SPOT EXCHANGE RATE SPOT MARKET STANDARD DEVIATION SUPPLY CURVE SUPPLY CURVES SUPPLY OF CREDIT SWAPS TRANSACTION UNCERTAINTY UNDERVALUATION VALUATION VOLATILE CAPITAL VOLATILITY VOLATILITY OF CAPITAL WEALTH WORLD ECONOMY ZERO INTEREST RATE |
| spellingShingle |
ACCUMULATION OF RESERVES ADVANCED ECONOMIES ADVANCED ECONOMY ARBITRAGE ASSET POSITIONS ASSETS AUCTION AUCTION AMOUNTS AUCTIONS BANK POLICY BONDS BROKERS BUFFERS CALL OPTIONS CAPITAL ACCOUNT CAPITAL FLOW CAPITAL FLOWS CAPITAL INFLOWS CAPITAL OUTFLOWS CENTRAL BANK CENTRAL BANK POLICY CENTRAL BANKS COMMODITY COMPETITIVE MARKET CONSUMERS CRAWLING PEG CREDIBILITY CREDIT GROWTH CURRENCY BASKETS CURRENCY CONVERTIBILITY CURRENCY CRISES CURRENCY DEPRECIATION CURRENCY MARKETS CURRENCY SWAPS CURRENT ACCOUNT CURRENT ACCOUNT SURPLUSES DEBT DEBT CRISIS DEBT REPAYMENT DEBT SERVICING DEFLATION DEMAND CURVE DEPRECIATIONS DEVALUATION DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DOLLAR EXCHANGE RATE DOMESTIC CREDIT DOMESTIC CREDIT GROWTH DOMESTIC CURRENCY DOMESTIC LIQUIDITY ECONOMIC CRISIS ECONOMIC OUTLOOK ECONOMIC POLICY EFFECTIVE EXCHANGE RATE EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS EQUILIBRIUM EXCESS DEMAND EXCHANGE RATE EXCHANGE RATE APPRECIATION EXCHANGE RATE FLUCTUATIONS EXCHANGE RATE LEVEL EXCHANGE RATE LEVELS EXCHANGE RATE MANAGEMENT EXCHANGE RATE MISALIGNMENT EXCHANGE RATE MOVEMENTS EXCHANGE RATE OVERVALUATION EXCHANGE RATE PEGS EXCHANGE RATE POLICIES EXCHANGE RATE REGIME EXCHANGE RATE REGIMES EXCHANGE RATE STABILITY EXCHANGE RATE VOLATILITY EXCHANGE-RATE EXPECTED RETURN EXPORT EARNINGS EXPOSURE EXTERNAL COMPETITIVENESS EXTERNAL DEBT FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL MARKET FINANCIAL STABILITY FINANCIAL STRESS FLEXIBLE EXCHANGE RATE FLEXIBLE EXCHANGE RATES FLOATING EXCHANGE RATE FLOATING EXCHANGE RATE REGIME FLOATING EXCHANGE RATES FOREIGN CURRENCY FOREIGN CURRENCY BORROWING FOREIGN EXCHANGE FOREIGN EXCHANGE MARKET FOREIGN EXCHANGE MARKET INTERVENTION FOREIGN EXCHANGE MARKETS FOREIGN EXCHANGE RESERVE FOREIGN EXCHANGE RESERVES FOREIGN TRADE FORWARD MARKET FORWARD MARKETS GDP GOLD GOVERNMENT BONDS HOLDING HOLDINGS IMPERFECT COMPETITION INCOME INCOME FLOWS INFLATION INFLATION RATE INFLATION TARGET INFLATION TARGETING INFLATION TARGETS INSTRUMENT INSURANCE INSURANCE COMPANIES INTEREST PARITY INTEREST RATE INTERNATIONAL BANK INTERNATIONAL CREDIT INTERNATIONAL MARKET INTERNATIONAL RESERVES INTERNATIONAL SETTLEMENTS INVESTING INVESTMENT PERIOD LIQUIDITY MARKET CONDITIONS MARKET CONFIDENCE MARKET CONTAGION MARKET EXCHANGE RATE MARKET MICROSTRUCTURE MARKET PARTICIPANTS MARKET VALUES MICROSTRUCTURE MONETARY AUTHORITIES MONETARY POLICIES MONETARY POLICY MONETARY POLICY FRAMEWORK MONEY MARKET MONEY SUPPLY NASH EQUILIBRIUM NET CAPITAL NOMINAL ANCHORS NOMINAL EXCHANGE RATE OIL EXPORTS OLIGOPOLY OPPORTUNITY COST OPPORTUNITY COSTS OTHER CURRENCIES OUTSTANDING STOCK PAYMENT OF INTEREST PEG PEGS PENSION PENSION FUND PORTFOLIO POST-CRISIS PERIOD PRICE INCREASES PRIMARY COMMODITY PRODUCT MARKETS PUBLIC DEBT PUT OPTIONS REAL ESTATE RELATIVE EXCHANGE RATE REPO REPO WINDOW REPOS RESERVE RESERVE ACCUMULATION RESERVE BANK RESERVE CHANGES RESERVE CURRENCIES RESERVE HOLDING RESERVE HOLDINGS RETURN RETURNS SHORT-TERM CAPITAL SHORT-TERM INTEREST RATES SPECULATIVE ATTACKS SPEED OF ADJUSTMENT SPOT EXCHANGE RATE SPOT MARKET STANDARD DEVIATION SUPPLY CURVE SUPPLY CURVES SUPPLY OF CREDIT SWAPS TRANSACTION UNCERTAINTY UNDERVALUATION VALUATION VOLATILE CAPITAL VOLATILITY VOLATILITY OF CAPITAL WEALTH WORLD ECONOMY ZERO INTEREST RATE Basu, Kaushik Varoudakis, Aristomene How to Move the Exchange Rate If You Must : The Diverse Practice of Foreign Exchange Intervention by Central Banks and a Proposal for Doing It Better |
| relation |
Policy Research Working Paper;No. 6460 |
| description |
The paper is about the art of exchange
rate management by central banks. It begins by reviewing the
diversity of objectives and practices of central bank
intervention in the foreign exchange market. Central banks
typically exercise discretion in determining when and to
what extent to intervene. Some central banks use publicly
declared rules of intervention, with the aim of increasing
visibility and strengthening the signaling channel of
policy. There is tentative evidence that the volatility of
foreign exchange reserves is comparatively lower in emerging
market economies where central banks follow some form of
rules-based foreign exchange intervention. The paper goes on
to argue that when the foreign exchange market includes some
large strategic participants, the central bank can achieve
superior outcomes if intervention takes the form of a rule,
or "schedule," indicating commitments to buying
and selling different quantities of foreign currency
conditional on the exchange rate. Exchange rate management
and reserve management can then be treated as two
independent objectives by the central bank. In line with the
stylized facts reviewed, this would enable a central bank to
pursue exchange rate objectives with minimum reserve
changes, or achieve reserve targets with minimum impact on
the exchange rate. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Basu, Kaushik Varoudakis, Aristomene |
| author_facet |
Basu, Kaushik Varoudakis, Aristomene |
| author_sort |
Basu, Kaushik |
| title |
How to Move the Exchange Rate If You Must : The Diverse Practice of Foreign Exchange Intervention by Central Banks and a Proposal for Doing It Better |
| title_short |
How to Move the Exchange Rate If You Must : The Diverse Practice of Foreign Exchange Intervention by Central Banks and a Proposal for Doing It Better |
| title_full |
How to Move the Exchange Rate If You Must : The Diverse Practice of Foreign Exchange Intervention by Central Banks and a Proposal for Doing It Better |
| title_fullStr |
How to Move the Exchange Rate If You Must : The Diverse Practice of Foreign Exchange Intervention by Central Banks and a Proposal for Doing It Better |
| title_full_unstemmed |
How to Move the Exchange Rate If You Must : The Diverse Practice of Foreign Exchange Intervention by Central Banks and a Proposal for Doing It Better |
| title_sort |
how to move the exchange rate if you must : the diverse practice of foreign exchange intervention by central banks and a proposal for doing it better |
| publisher |
World Bank, Washington, DC |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2013/05/17751131/move-exchange-rate-must-diverse-practice-foreign-exchange-intervention-central-banks-proposal-doing-better http://hdl.handle.net/10986/15551 |
| _version_ |
1764429538912108544 |
| spelling |
okr-10986-155512021-04-23T14:03:19Z How to Move the Exchange Rate If You Must : The Diverse Practice of Foreign Exchange Intervention by Central Banks and a Proposal for Doing It Better Basu, Kaushik Varoudakis, Aristomene ACCUMULATION OF RESERVES ADVANCED ECONOMIES ADVANCED ECONOMY ARBITRAGE ASSET POSITIONS ASSETS AUCTION AUCTION AMOUNTS AUCTIONS BANK POLICY BONDS BROKERS BUFFERS CALL OPTIONS CAPITAL ACCOUNT CAPITAL FLOW CAPITAL FLOWS CAPITAL INFLOWS CAPITAL OUTFLOWS CENTRAL BANK CENTRAL BANK POLICY CENTRAL BANKS COMMODITY COMPETITIVE MARKET CONSUMERS CRAWLING PEG CREDIBILITY CREDIT GROWTH CURRENCY BASKETS CURRENCY CONVERTIBILITY CURRENCY CRISES CURRENCY DEPRECIATION CURRENCY MARKETS CURRENCY SWAPS CURRENT ACCOUNT CURRENT ACCOUNT SURPLUSES DEBT DEBT CRISIS DEBT REPAYMENT DEBT SERVICING DEFLATION DEMAND CURVE DEPRECIATIONS DEVALUATION DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DOLLAR EXCHANGE RATE DOMESTIC CREDIT DOMESTIC CREDIT GROWTH DOMESTIC CURRENCY DOMESTIC LIQUIDITY ECONOMIC CRISIS ECONOMIC OUTLOOK ECONOMIC POLICY EFFECTIVE EXCHANGE RATE EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS EQUILIBRIUM EXCESS DEMAND EXCHANGE RATE EXCHANGE RATE APPRECIATION EXCHANGE RATE FLUCTUATIONS EXCHANGE RATE LEVEL EXCHANGE RATE LEVELS EXCHANGE RATE MANAGEMENT EXCHANGE RATE MISALIGNMENT EXCHANGE RATE MOVEMENTS EXCHANGE RATE OVERVALUATION EXCHANGE RATE PEGS EXCHANGE RATE POLICIES EXCHANGE RATE REGIME EXCHANGE RATE REGIMES EXCHANGE RATE STABILITY EXCHANGE RATE VOLATILITY EXCHANGE-RATE EXPECTED RETURN EXPORT EARNINGS EXPOSURE EXTERNAL COMPETITIVENESS EXTERNAL DEBT FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL MARKET FINANCIAL STABILITY FINANCIAL STRESS FLEXIBLE EXCHANGE RATE FLEXIBLE EXCHANGE RATES FLOATING EXCHANGE RATE FLOATING EXCHANGE RATE REGIME FLOATING EXCHANGE RATES FOREIGN CURRENCY FOREIGN CURRENCY BORROWING FOREIGN EXCHANGE FOREIGN EXCHANGE MARKET FOREIGN EXCHANGE MARKET INTERVENTION FOREIGN EXCHANGE MARKETS FOREIGN EXCHANGE RESERVE FOREIGN EXCHANGE RESERVES FOREIGN TRADE FORWARD MARKET FORWARD MARKETS GDP GOLD GOVERNMENT BONDS HOLDING HOLDINGS IMPERFECT COMPETITION INCOME INCOME FLOWS INFLATION INFLATION RATE INFLATION TARGET INFLATION TARGETING INFLATION TARGETS INSTRUMENT INSURANCE INSURANCE COMPANIES INTEREST PARITY INTEREST RATE INTERNATIONAL BANK INTERNATIONAL CREDIT INTERNATIONAL MARKET INTERNATIONAL RESERVES INTERNATIONAL SETTLEMENTS INVESTING INVESTMENT PERIOD LIQUIDITY MARKET CONDITIONS MARKET CONFIDENCE MARKET CONTAGION MARKET EXCHANGE RATE MARKET MICROSTRUCTURE MARKET PARTICIPANTS MARKET VALUES MICROSTRUCTURE MONETARY AUTHORITIES MONETARY POLICIES MONETARY POLICY MONETARY POLICY FRAMEWORK MONEY MARKET MONEY SUPPLY NASH EQUILIBRIUM NET CAPITAL NOMINAL ANCHORS NOMINAL EXCHANGE RATE OIL EXPORTS OLIGOPOLY OPPORTUNITY COST OPPORTUNITY COSTS OTHER CURRENCIES OUTSTANDING STOCK PAYMENT OF INTEREST PEG PEGS PENSION PENSION FUND PORTFOLIO POST-CRISIS PERIOD PRICE INCREASES PRIMARY COMMODITY PRODUCT MARKETS PUBLIC DEBT PUT OPTIONS REAL ESTATE RELATIVE EXCHANGE RATE REPO REPO WINDOW REPOS RESERVE RESERVE ACCUMULATION RESERVE BANK RESERVE CHANGES RESERVE CURRENCIES RESERVE HOLDING RESERVE HOLDINGS RETURN RETURNS SHORT-TERM CAPITAL SHORT-TERM INTEREST RATES SPECULATIVE ATTACKS SPEED OF ADJUSTMENT SPOT EXCHANGE RATE SPOT MARKET STANDARD DEVIATION SUPPLY CURVE SUPPLY CURVES SUPPLY OF CREDIT SWAPS TRANSACTION UNCERTAINTY UNDERVALUATION VALUATION VOLATILE CAPITAL VOLATILITY VOLATILITY OF CAPITAL WEALTH WORLD ECONOMY ZERO INTEREST RATE The paper is about the art of exchange rate management by central banks. It begins by reviewing the diversity of objectives and practices of central bank intervention in the foreign exchange market. Central banks typically exercise discretion in determining when and to what extent to intervene. Some central banks use publicly declared rules of intervention, with the aim of increasing visibility and strengthening the signaling channel of policy. There is tentative evidence that the volatility of foreign exchange reserves is comparatively lower in emerging market economies where central banks follow some form of rules-based foreign exchange intervention. The paper goes on to argue that when the foreign exchange market includes some large strategic participants, the central bank can achieve superior outcomes if intervention takes the form of a rule, or "schedule," indicating commitments to buying and selling different quantities of foreign currency conditional on the exchange rate. Exchange rate management and reserve management can then be treated as two independent objectives by the central bank. In line with the stylized facts reviewed, this would enable a central bank to pursue exchange rate objectives with minimum reserve changes, or achieve reserve targets with minimum impact on the exchange rate. 2013-09-04T14:55:48Z 2013-09-04T14:55:48Z 2013-05 http://documents.worldbank.org/curated/en/2013/05/17751131/move-exchange-rate-must-diverse-practice-foreign-exchange-intervention-central-banks-proposal-doing-better http://hdl.handle.net/10986/15551 English en_US Policy Research Working Paper;No. 6460 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |