Today, in many countries a policy of managed exchange rate of the national currency, for which the state central banks to the so-called foreign exchange intervention, optimized for a specific value of domestic currency.After releasing the course of the national currency to float freely, you can get problems in the economy.What is the Bank of currency intervention and how it is carried out - this is necessary to understand in more detail.
Definition intervention
currency intervention is called a one-time deal for the purchase or sale of foreign currency in Russia undertaken by the Bank of Russia.The volume of foreign exchange intervention is usually quite large.Their goal is to control the rate of the national currency in the interests of the state.Basically, these actions are implemented to strengthen the national currency, but sometimes they can be sent and its weakening.
Such operations are able to exercise significant influence on the foreign exchange market in general, and in the course of a monetary unit.Currency interventions are initiated by Central Bank of the country and, basically, they are the main method of conducting monetary policy.In addition, regulation of currency relations, particularly when it comes to third world countries, there is, together with the other members of the IMF.To participate in these events attract banks and the Treasury, and manipulations are carried out not only with currency, but also with precious metals, especially gold.Currency intervention of the Central Bank carried out exclusively by prior arrangement and is carried out in a specific, predetermined timeframe.
mechanisms of raising and lowering the national currency
In fact, the mechanism of regulation of the national currency is very simple, and it is built on the principle of "supply and demand".If necessary, increase the cost of domestic money the Central Bank of the country begins to actively sell foreign banknotes (mainly the dollar), the can be used any other convertible currency.Thus, central bank intervention leads to excess (increased supply) of foreign currency in the financial market.Simultaneously, the Central Bank buys the national currency, which generates an additional demand for it, which made the course can grow even faster.
Directly opposite is conducted currency intervention of the Central Bank, aimed at the weakening of the national currency, which are beginning to sell, allowing you to increase its value.Purchase of foreign bank notes leads to artificial shortages in the domestic market.
types of currency interventions
Notably, it is not always central bank intervention involves buying and selling a large amount of currency from time to time may be conducted sham procedure, sometimes called verbal.In such cases, the Central Bank admits some rumor or "duck", so that the situation on the currency market can change appreciably.Sometimes a fictitious intervention used to enhance the effect of this currency intervention.It is also very often a few banks can pool their efforts to achieve their desired results.
practice shows that verbal intervention by Central Banks used much more frequently than real.An important role is played in such cases the element of surprise.In any case, the intervention of the Central Bank, aimed at strengthening the existing trend in the currency market are usually more successful than the manipulation, the purpose is to turn it in the opposite direction.
currency intervention by the example of Japan
Stories known cases of mass manipulation in the foreign exchange market.For example, in 2011, due to the difficulties in the US economy and the European Union, Japan had to adjust the exchange rate, the authorities were forced to reduce it.Japanese Finance Minister said that speculation in the foreign exchange market caused the overvaluation of the yen relative to foreign currency and this situation does not correspond to the state of the economy.Subsequently, it was decided to adjust the yen, together with the Central Bank of the West, for which Japan has made several big transactions on purchase of foreign currency.The introduction of the currency market trillion yen helped to reduce its rate to 2%, and balance the economy.
use of financial leverage in Russia
striking example of the use of financial instruments in Russia can be observed since 1995.Until that moment, the Central Bank sold foreign currency for the regulation of the ruble, and in July 1995 was introduced the principle of the exchange rate band, according to which the value of the national currency should be maintained within the prescribed limits and for a certain period of time.However, changes in the world economy by the year 2008 made this model of monetary policy ineffective, then it was introduced dual currency corridor.In this case, the exchange rate was regulated on the basis of its relationship to the US dollar and the euro.Either way, the central bank foreign exchange intervention carried out following this monetary policy.
Events 2014-2015 affected the fruitfulness of the Central Bank of Russia conducted foreign exchange intervention, so his recent manipulation did not give the desired result.Falling oil prices, the consequent reduction in reserves of the Central Bank and the discrepancy in the budget eventually make currency interventions irrational and meaningless.
Alternative adjustable rate
Today, Russia is highly dependent on hydrocarbon exports, which prevents the growth of the national currency.Therefore, such financial leverage, as the intervention of the Central Bank, with which the market is systematically join the dollar and euro is simply necessary for the country's economy.However, in light of recent events, when the intervention of the Central Bank ceased to contribute to controlling the cost of the national currency, with the November 10, 2014 was a transition to a floating exchange rate.Now the foreign exchange intervention carried out only in exceptional cases.
Perhaps in this article gives a comprehensive answer to the question, what is currency intervention of the Central Bank, so more thoroughly go into the intricacies of financial instruments will be too.
