Foreign-Exchange-Market Operations in the Twenty-First Century
Although the Federal Reserve has stopped routinely intervening in the foreign-exchange market, other central banks have continued to do so. The Great Recession piqued interest in foreign-exchange operations especially among many emerging-market economies. In this epilogue, we describe five recent events that offer relevant counterpoints to the Federal Reserve’s history of foreign-exchange operations: Japan’s continued interest in intervention offers an interesting parallel to past US involvement. Switzerland provides acase study of the effectiveness of sterilized and nonsterilized interventions. China seems to systematically undervalue its currency, but the key lies in its central bank’scontinued ability to sterilize its interventions. We also briefly review intervention in developing and emerging market economies, and we discuss the re-emergent use of swap lines as a source of emergency liquidity.
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