Official Intervention in the Foreign Exchange Market: Elements of Best Practice

44 Pages Posted: 28 Jan 2006

See all articles by Jorge Iván Canales-Kriljenko

Jorge Iván Canales-Kriljenko

International Monetary Fund (IMF)

Roberto F. Guimaraes

International Monetary Fund (IMF)

Cem Karacadag

International Monetary Fund (IMF) - Monetary and Exchange Affairs Department

Date Written: July 2003

Abstract

This paper offers guidance on the operational aspects of official intervention in the foreign exchange market, particularly in developing countries with flexible exchange rate regimes. A brief survey of the literature and country experience is followed by an analysis of the objectives, timing, amount, degree of transparency, and choice of markets and counterparties in conducting intervention. The analysis highlights the difficulty of detecting exchange rate misalignments and disorderly markets, and argues in favor of parsimony in official intervention. Determining the timing and amount of intervention is a highly subjective exercise, and some degree of discretion is almost always necessary, though policy rules may serve as rules of thumb.

Keywords: foreign exchange intervention, exchange rate policy

JEL Classification: E58, F31, G28

Suggested Citation

Canales-Kriljenko, Jorge Iván and Guimaraes, Roberto F. and Karacadag, Cem, Official Intervention in the Foreign Exchange Market: Elements of Best Practice (July 2003). IMF Working Paper No. 03/152, Available at SSRN: https://ssrn.com/abstract=879228

Jorge Iván Canales-Kriljenko (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Roberto F. Guimaraes

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Cem Karacadag

International Monetary Fund (IMF) - Monetary and Exchange Affairs Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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