Currency interventions to stabilise exchange rates seem to be relatively ineffective

- "Based on the recent experience of many countries (e.g. Japan, Switzerland,
Brazil, South Korea), policies of currency intervention (use of foreign
exchange reserves) to stabilise exchange rates (in the cases studied, to
prevent an exchange rate appreciation) in a flexible exchange rate regime
seem to be relatively ineffective."
- "This is probably due to the fact that the expectation of an exchange rate
appreciation has, in the contemporary period, attracted to the country in
question a larger mass of capital than what the central bank is prepared to
accumulate in its reserves, in a situation of flexible exchange rates and
perfect capital mobility."
- "China is a case apart, firstly because there are capital controls and secondly
because the exchange rate is not flexible but fixed, administered by the
central bank, which may limit expectations of an appreciation."



Natixis Flash Economics 467 20100916