Expert Chaslau Koniukh
  • Biography
  • Analytics
  • Companies and corporations
  • Global investment
  • Investors and Entrepreneurs
  • Market terminology
  • Stock Market
  • World exchanges
currency intervention

Currency intervention as an instrument for adjusting the national currency rate

05.09.2020
2 min read

In which cases currency intervention is used

Currency intervention is an instrument of national currency regulation, which is used by the central bank of the country. It consists of buying or selling a large amount of money over a certain period of time. The purpose of this procedure is to maintain the rate at the right level so as not to cause serious economic consequences for the state.
Often, currency intervention is carried out simultaneously by several central banks, agreeing among themselves to stabilize the world market. A vivid example of such cooperation is the G7 alliance and its decision to direct joint efforts to support the Japanese economy, which it needed after the earthquake. In order to increase the country’s competitiveness, measures were introduced to depreciate the yen against the dollar. In 2011, according to an agreement between central banks of Japan, Europe, the U.S. Federal Reserve, the yen was reduced by 2% within a few minutes.
Another function of currency interventions is to monitor exchange rate volatility. This instrument is used to slow down exchange rate depreciation, maintain currency liquidity, regulate withdrawal and import procedures. In addition, the intervention allows the central bank to replenish its reserves.
The Bank of Russia regularly uses this method to adjust the exchange rate of the ruble against the euro and the dollar. Until 1995, currency interventions in the Russian Federation were used to sell cash, but later a law on the currency corridor was adopted. It implied the designation of the minimum and maximum rate of the rouble against the dollar for a specific period of time.
In 2008, a bi-currency corridor was introduced, which also applies to the euro, in addition to the US national currency. This instrument is used so that the Central Bank of Russia could buy the ruble if its rate reached the minimum limit, and sell it when it is at the maximum value.

currency intervention

Since 2015, currency intervention has been used to replenish the state reserve by purchasing foreign capital on the stock market. For this purpose, the purchase was carried out on a daily basis in small amounts in order to have no significant impact on the national currency rate. Thus, it was possible to purchase $10.1 billion, but the intervention was soon stopped, as it began to lead to changes in the foreign exchange market.
Interventions in foreign exchange are not always possible. When deciding to introduce these measures, one should focus on the stability of pricing policy, a small percentage of inflation and exchange rate fluctuations. The use of such an instrument of national currency regulation is not recommended frequently, it is considered a measure of last resort. The result of a currency intervention may not be the same as forecasted, so a thorough market analysis should be carried out before the procedure.

Share
0
Previous Post Automobile concern Fiat Chrysler Automobiles: plans to merge with Peugeot Societe Anonyme Next Post US oil industry shows signs of growth: Rystad review

You Might Also Like

junk bonds
Market terminology
Junk bonds: characteristics of securities with low credit ratings
02.02.2021
company delisting
Market terminology
Company delisting: in which cases it is needed
26.08.2020
option contract
Market terminology
What are option contracts and their types?
24.12.2020
mechanical trading systems
Market terminology
Why mechanical trading systems should be used to trade in the market
13.01.2021
trade risk
Market terminology
Trade risk for companies: types and ways to reduce damage
15.09.2020
underwriter profession
Market terminology
Underwriter: a profession that helps assess business risks
04.11.2020

Recent Posts

  • 1the best currency for savings
    BKS Broker: the best currency for savings
    28.02.2021
  • 2second wave of contagion
    How the second wave of contagion will affect the cost of the cryptocurrency
    27.02.2021
  • 3China's economic recovery
    How China’s economic recovery is going: a review of the processes
    26.02.2021
  • 4Wendy Deng
    Wendy Deng: How a poor Chinese girl became one of the most powerful women in the world
    25.02.2021
  • 5PNC Financial Services Group
    Financial Corporation PNC Financial Services Group
    24.02.2021

Popular Posts

  • How China’s economic recovery is going: a review of the processes 0
  • How foreign investments are distributed in the world 0
  • Strong economies: development and prospects for Iceland 0
  • What to do when the stock exchanges are falling: analyze the fall of the indexes 0

Social

Editor's Picks

Chaslau Koniukh

American bankers from JPMorgan and Goldman Sachs advise to invest in gold: review by Chaslau Koniukh.

Spokesperson
17.08.2020
Expert Chaslau Koniukh

Chaslau Koniukh on the analysts’ opinion on the key stake size change soon

Spokesperson
18.06.2020
expert Chaslau Koniukh

Chaslau Koniukh: Internet trade market in Russia may reach 2.78 trillion rubles.

Spokesperson
30.05.2020
Will the U.S. oil shale industry be able to quickly recover from the crisis: A Review by Chaslau Koniukh

Will the U.S. oil shale industry be able to quickly recover from the crisis: A Review by Chaslau Koniukh

Spokesperson
16.05.2020

Latest Posts

the best currency for savings
BKS Broker: the best currency for savings
28.02.2021
second wave of contagion
How the second wave of contagion will affect the cost of the cryptocurrency
27.02.2021
China's economic recovery
How China’s economic recovery is going: a review of the processes
26.02.2021

Chaslau Koniukh

Expert Chaslau Koniukh

Chaslau Koniukh is an international financial expert, a professional investor, an experienced analyst and a practicing trader. He advises European entrepreneurs; holds lectures on investment topics; is the author of scientific articles on work at the stock market.

Recent Posts

  • 1the best currency for savings
    BKS Broker: the best currency for savings
    28.02.2021
  • 2second wave of contagion
    How the second wave of contagion will affect the cost of the cryptocurrency
    27.02.2021
  • 3China's economic recovery
    How China’s economic recovery is going: a review of the processes
    26.02.2021
Expert Chaslau Koniukh
  • Facebook
  • Twitter
  • Youtube
  • Instagram
  • Biography

Expert Chaslau Koniukh: brief biography and path of formation

Let’s Socialize