Foreign Exchange Intervention in Emerging Market Economies: Lessons, Issues and Implications for Central Banks
7 Pages Posted: 6 Oct 2014
Date Written: October 2013
In the wake of the Lehman crisis, intervention in the foreign exchange market has been a topic of increasing relevance in central banking, particularly for small and medium open economies like Argentina. This has implied a change in focus to deal with some problems arising from the combination of the international financial crisis and the monetary policies implemented by developed countries. Therefore, the policies implemented by EMEs to cope with the crisis have included direct central bank intervention in the foreign exchange market, either in the spot or in the forward market, the build-up of international reserves, the adoption of administered floating exchange rate regimes and the regulation of capital inflows and outflows. Argentina followed those policy guidelines well before the crisis erupted, allowing it to reduce nominal exchange rate volatility and maintaining monetary stability.
Keywords: central banks and their policies, foreign exchange, current account adjustment, short-term capital movements
JEL Classification: E58, F31, F32
Suggested Citation: Suggested Citation