Currency intervention

Currency intervention, also known as foreign exchange market intervention or currency manipulation, is a monetary policy operation. It occurs when a government or central bank buys or sells foreign currency in exchange for their own domestic currency, generally with the intention of influencing the exchange rate and trade policy.

Policymakers may intervene in foreign exchange markets in order to advance a variety of economic objectives: controlling inflation, maintaining competitiveness, or maintaining financial stability. The precise objectives are likely to depend on the stage of a country's development, the degree of financial market development and international integration, and the country's overall vulnerability to shocks, among other factors.[1]

The most complete type of currency intervention is the imposition of a fixed exchange rate with respect to some other currency or to a weighted average of some other currencies.

Exchange Money Conversion to Foreign Currency
HR3004 of 2005 (CHINA Act) Press Conference
US lawmakers discussing the Currency Harmonization Initiative Through Neutralizing Action (CHINA) Act of 2005


There are many reasons a country's monetary and/or fiscal authority may want to intervene in the foreign exchange market. Central banks generally agree that the primary objective of foreign exchange market intervention is to manage the volatility and/or influence the level of the exchange rate. Governments prefer to stabilize the exchange rate because excessive short-term volatility erodes market confidence and affects both the financial market and the real goods market.

When there is inordinate instability, exchange rate uncertainty generates extra costs and reduces profits for firms. As a result, investors are unwilling to make investment in foreign financial assets. Firms are reluctant to engage in international trade. Moreover, the exchange rate fluctuation would spill over into the other financial markets. If the exchange rate volatility increases the risk of holding domestic assets, then prices of these assets would also become more volatile. The increased volatility of financial markets would threaten the stability of the financial system and make monetary policy goals more difficult to attain. Therefore, authorities conduct currency intervention.

In addition, when economic conditions change or when the market misinterprets economic signals, authorities use foreign exchange intervention to correct exchange rates, in order to avoid overshooting of either direction. Anna Schwartz contended that the central bank can cause the sudden collapse of speculative excess, and that it can limit growth by constricting the money supply.[2]

Today, forex market intervention is largely used by the central banks of developing countries, and less so by developed countries. There are a few reasons most developed countries no longer actively intervene:

  • Research and experience suggest that the instrument is only effective (at least beyond the very short term) if seen as foreshadowing interest rate or other policy adjustments. Without a durable and independent impact on the nominal exchange rate, intervention is seen as having no lasting power to influence the real exchange rate and thus competitive conditions for the tradable sector.
  • Large-scale intervention can undermine the stance of monetary policy.

Developing countries, on the other hand, do sometimes intervene, presumably because they believe the instrument to be an effective tool in the circumstances and for the situations they face. Objectives include: to control inflation, to achieve external balance or enhance competitiveness to boost growth, or to prevent currency crises, such as large depreciation/appreciation swings.[3]

In a Bank for International Settlements (BIS) paper published in 2015, the authors describe the common reasons central banks intervene. Based on a BIS survey, in foreign exchange markets "emerging market central banks" use the strategy of "leaning against the wind" "to limit exchange rate volatility and smooth the trend path of the exchange rate".[4]:5,6 In their 2005 meeting on foreign exchange market intervention, central bank governors had noted that, "Many central banks would argue that their main aim is to limit exchange rate volatility rather than to meet a specific target for the level of the exchange rate". Other reasons cited (that do not target the exchange rate) were to "slow the rate of change of the exchange rate", "dampen exchange rate volatility", "supply liquidity to the forex market", or "influence the level of foreign reserves".[5]:1

Historical context

In the Cold War-era United States, under the Bretton Woods system of fixed exchange rates, intervention was used to help maintain the exchange rate within prescribed margins and was considered to be essential to a central bank's toolkit. The dissolution of the Bretton Woods system between 1968 and 1973 was largely due to President Richard Nixon's “temporary” suspension of the dollar's convertibility to gold in 1971, after the dollar struggled throughout the late 1960s in light of large increases in the price of gold. An attempt to revive the fixed exchange rates failed, and by March 1973 the major currencies began to float against each other. Since the end of the traditional Bretton Woods system, IMF members have been free to choose any form of exchange arrangement they wish (except pegging their currency to gold), such as: allowing the currency to float freely, pegging it to another currency or a basket of currencies, adopting the currency of another country, participating in a currency bloc, or forming part of a monetary union. The end of the traditional Bretton Woods system in the early 1970s led to widespread but not universal currency management.[6]

From 2008 through 2013, central banks in emerging market economies (EMEs) had to "re-examine their foreign exchange market intervention strategies" because of "huge swings in capital flows to and from EMEs.[7]:1

Quite unlike their experiences in the early 2000s, several countries that had at different times resisted appreciation pressures suddenly found themselves having to intervene against strong depreciation pressures. The sharp rise in the US long-term interest rate from May to August 2013 led to heavy pressures in currency markets. Several EMEs sold large amounts of forex reserves, raised interest rates and – equally important – provided the private sector with insurance against exchange rate risks.

— M S MohantyBIC 2013

Direct intervention

Direct currency intervention is generally defined as foreign exchange transactions that are conducted by the monetary authority and aimed at influencing the exchange rate. Depending on whether it changes the monetary base or not, currency intervention can be distinguished between non-sterilized intervention and sterilized intervention, respectively.

  • Sterilized intervention
Sterilized intervention is a policy that attempts to influence the exchange rate without changing the monetary base. The procedure is a combination of two transactions. First, the central bank conducts a non-sterilized intervention by buying (selling) foreign currency bonds using domestic currency that it issues. Then the central bank “sterilizes” the effects on the monetary base by selling (buying) a corresponding quantity of domestic-currency-denominated bonds to soak up the initial increase (decrease) of the domestic currency. The net effect of the two operations is the same as a swap of domestic-currency bonds for foreign-currency bonds with no change in the money supply.[8] With sterilization, any purchase of foreign exchange is accompanied by an equal-valued sale of domestic bonds.
For example, desiring to decrease the exchange rate, expressed as the price of domestic currency, without changing the monetary base, the monetary authority purchases foreign-currency bonds, the same action as in the last section. After this action, in order to keep the monetary base unchanged, the monetary authority conducts a new transaction, selling an equal amount of domestic-currency bonds, so that the total money supply is back to the original level.
  • Non-sterilized intervention
Non-sterilized intervention is a policy that alters the monetary base. Specifically, authorities affect the exchange rate through purchasing or selling foreign money or bonds with domestic currency.
For example, aiming at decreasing the exchange rate/price of the domestic currency, authorities could purchase foreign currency bonds. During this transaction, extra supply of domestic currency will drag down domestic currency price, and extra demand of foreign currency will push up foreign currency price. As a result, the exchange rate drops.

Indirect intervention

Indirect currency intervention is a policy that influences the exchange rate indirectly. Some examples are capital controls (taxes or restrictions on international transactions in assets), and exchange controls (the restriction of trade in currencies).[9] Those policies may lead to inefficiencies or reduce market confidence, or in the case of exchange controls may lead to the creation of a black market, but can be used as an emergency damage control.


Argentina trade chart
Imports and exports from Argentina 1992 to 2004

Non-sterilization intervention

In general, there is a consensus in the profession that non-sterilized intervention is effective. Similarly to the monetary policy, nonsterilized intervention influences the exchange rate by inducing changes in the stock of the monetary base, which, in turn, induces changes in broader monetary aggregates, interest rates, market expectations and ultimately the exchange rate.[10] As we have shown in the previous example, the purchase of foreign-currency bonds leads to the increase of home-currency money supply and thus a decrease of the exchange rate.

Sterilization intervention

On the other hand, the effectiveness of sterilized intervention is more controversial and ambiguous. By definition, the sterilized intervention has little or no effect on domestic interest rates, since the level of the money supply has remained constant. However, according to some literature, sterilized intervention can influence the exchange rate through two channels: the portfolio balance channel and the expectations or signaling channel.[11]

The portfolio balance channel
In the portfolio balance approach, domestic and foreign bonds are not perfect substitutes. Agents balance their portfolios among domestic money and bonds, and foreign currency and bonds. Whenever aggregate economic conditions change, agents adjust their portfolios to a new equilibrium, based on a variety of considerations, i.e., wealth, tastes, expectation, etc.. Thus, these actions to balance portfolios will influence exchange rates.
The expectations or signaling channel
Even if domestic and foreign assets are perfectly substitutable with each other, sterilized intervention is still effective. According to the signaling channel theory, agents may view exchange rate intervention as a signal about the future stance of policy. Then the change of expectation will affect the current level of the exchange rate.

Modern examples

According to the Peterson Institute, there are four groups that stand out as frequent currency manipulators: longstanding advanced and developed economies, such as Japan and Switzerland, newly industrialized economies such as Singapore, developing Asian economies such as China, and oil exporters, such as Russia.[12] China's currency intervention and foreign exchange holdings are unprecedented.[13] It is common for countries to manage their exchange rate via central bank to make their exports cheap. That method is being used extensively by the emerging markets of Southeast Asia, in particular.

The American dollar is generally the primary target for these currency managers. The dollar is the global trading system's premier reserve currency, meaning dollars are freely traded and confidently accepted by international investors.[14] System Open Market Account is a monetary tool of the Federal Reserve system that may intervene to counter disorderly market conditions.[15] In 2014, a number of large investment banks, including UBS, JPMorgan Chase, Citigroup, HSBC and the Royal Bank of Scotland were fined for currency manipulations.[16]

Swiss franc

As the financial crisis of 2007–08 hit Switzerland, the Swiss franc appreciated "owing to a flight to safety and to the repayment of Swiss franc liabilities funding carry trades in high yielding currencies." On March 12, 2009, the Swiss National Bank (SNB) announced that it intended to buy foreign exchange to prevent the Swiss franc from further appreciation. Affected by the SNB purchase of euros and US dollars, the Swiss franc weakened from 1.48 against the euro to 1.52 in a single day. At the end of 2009, the currency risk seemed to be solved; the SNB changed its attitude to preventing substantial appreciation. Unfortunately, the Swiss franc began to appreciate again. Thus, the SNB stepped in one more time and intervened at a rate of more than CHF 30 billion per month. By the end of June 17, 2010, when the SNB announced the end of its intervention, it had purchased an equivalent of $179 billion of Euros and U.S. dollars, amounting to 33% of Swiss GDP.[17] Furthermore, in September 2011, the SNB influenced the foreign exchange market again, and set a minimum exchange rate target of SFr 1.2 to the Euro.

On January 15, 2015, the SNB suddenly announced that it would no longer hold the Swiss Franc at the fixed exchange rate with the euro it had set in 2011. The franc soared in response; the euro fell roughly 40 percent in value in relation to the franc, falling as low as 0.85 francs (from the original 1.2 francs).[18]

As investors flocked to the franc during the financial crisis, they dramatically pushed up its value. An expensive franc may have large adverse effects on the Swiss economy; the Swiss economy is heavily reliant on selling things abroad. Exports of goods and services are worth over 70% of Swiss GDP. To maintain price stability and lower the franc's value, the SNB created new francs and used them to buy euros. Increasing the supply of francs relative to euros on foreign-exchange markets caused the franc's value to fall (ensuring the euro was worth 1.2 francs). This policy resulted in the SNB amassing roughly $480 billion-worth of foreign currency, a sum equal to about 70% of Swiss GDP.

The Economist asserts that the SNB dropped the cap for the following reasons: first, rising criticisms among Swiss citizens regarding the large build-up of foreign reserves. Fears of runaway inflation underlie these criticisms, despite inflation of the franc being too low, according to the SNB. Second, in response to the European Central Bank's decision to initiate a quantitative easing program to combat euro deflation. The consequent devaluation of the euro would require the SNB to further devalue the franc had they decided to maintain the fixed exchange rate. Third, due to recent euro depreciation in 2014, the franc lost roughly 12% of its value against the USD and 10% against the rupee (exported goods and services to the U.S. and India account for roughly 20% Swiss exports).

Following the SNB's announcement, the Swiss stock market sharply declined; due to a stronger franc, Swiss companies would have had a more difficult time selling goods and services to neighboring European citizens.[19]

In June 2016, when the results of the Brexit referendum were announced, the SNB gave a rare confirmation that it had increased foreign currency purchases again, as evidenced by a rise of commercial deposits to the national bank. Negative interest rates coupled with targeted foreign currency purchases have helped to limit the strength of the Swiss Franc in a time when the demand for safe haven currencies is increasing. Such interventions assure the price competitiveness of Swiss products in the European Union and global markets.[20]

Japanese yen

From 1989 to 2003, Japan was suffering from a long deflationary period. After experiencing economic boom, the Japanese economy slowly declined in the early 1990s and entered a deflationary spiral in 1998. Within this period, Japanese output was stagnating; the deflation (negative inflation rate) was continuing, and the unemployment rate was increasing. Simultaneously, confidence in the financial sector waned, and several banks failed. During the period, the Bank of Japan, having become legally independent in March 1998, aimed at stimulating the economy by ending deflation and stabilizing the financial system.[21] The "availability and effectiveness of traditional policy instruments was severely constrained as the policy interest rate was already virtually at zero, and the nominal interest rate could not become negative (the zero bound problem)."[22]

In response of deflationary pressures, the Bank of Japan, in coordination with the Ministry of Finance, launched a reserve targeting program. The BOJ increased the commercial bank current account balance to ¥35 trillion. Subsequently, the MoF used those funds to purchase $320 billion in U.S. treasury bonds and agency debt.[23]

By 2014, critics of Japanese currency intervention asserted that the central bank of Japan was artificially and intentionally devaluing the yen. Some state that the 2014 US-Japan trade deficit — $261.7 billion — was increased unemployment in the United States. Bank of Korea Governor Kim Choong Soo has urged Asian countries to work together to defend themselves against the side-effects of Japanese Prime Minister Shinzo Abe's reflation campaign. Some have (who?) stated this campaign is in response to Japan's stagnant economy and potential deflationary spiral.

In 2013, Japanese Finance Minister Taro Aso stated Japan planned to use its foreign exchange reserves to buy bonds issued by the European Stability Mechanism and euro-area sovereigns, in order to weaken the yen. The U.S. criticized Japan for undertaking unilateral sales of the yen in 2011, after Group of Seven economies jointly intervened to weaken the currency in the aftermath of the record earthquake and tsunami that year.

By 2013, Japan held $1.27 trillion in foreign reserves according to finance ministry data.[24]

Chinese yuan

CNY-USD 1989-
Currency intervention has led to the devaluing of the Yuan, 1989 to 2008

In the 1990s and 2000s, there was a marked increase in American imports of Chinese goods. China's central bank allegedly devalued yuan by buying large amounts of US dollars with yuan, thus increasing the supply of the yuan in the foreign exchange market, while increasing the demand for US dollars, thus increasing the price of USD. According to an article published in KurzyCZ by Vladimir Urbanek, by December 2012, China's foreign exchange reserve held roughly $3.3 trillion, making it the highest foreign exchange reserve in the world. Roughly 60% of this reserve was composed of US government bonds and debentures.[25]

There has been much disagreement on how the United States should respond to Chinese devaluation of the yuan. This is partly due to disagreement over the actual effects of the undervalued yuan on capital markets, trade deficits, and the US domestic economy.

Paul Krugman argued in 2010, that China intentionally devalued its currency to boost its exports to the United States and as a result, widening its trade deficit with the US. Krugman suggested at that time, that the United States should impose tariffs on Chinese goods. Krugman stated:[26]

The more depreciated China’s exchange rate — the higher the price of the dollar in yuan — the more dollars China earns from exports, and the fewer dollars it spends on imports. (Capital flows complicate the story a bit, but don’t change it in any fundamental way). By keeping its current artificially weak — a higher price of dollars in terms of yuan — China generates a dollar surplus; this means the Chinese government has to buy up the excess dollars.

Greg Mankiw, on the other hand, asserted in 2010 the U.S. protectionism via tariffs will hurt the U.S. economy far more than Chinese devaluation. Similarly, others have stated that the undervalued yuan has actually hurt China more in the long run insofar that the undervalued yuan does not subsidize the Chinese exporter, but subsidizes the American importer. Thus, importers within China have been substantially hurt due to the Chinese government's intention to continue to grow exports.[27]

The view that China manipulates its currency for its own benefit in trade has been criticized by Cato Institute trade policy studies fellow Daniel Pearson,[28] National Taxpayers Union Policy and Government Affairs Manager Clark Packard,[29] entrepreneur and Forbes contributor Louis Woodhill,[30] Henry Kaufman Professor of Financial Institutions at Columbia University Charles W. Calomiris,[31] economist Ed Dolan,[32] William L. Clayton Professor of International Economic Affairs at the Fletcher School, Tufts University Michael W. Klein,[33] Harvard University Kennedy School of Government Professor Jeffrey Frankel,[34] Bloomberg columnist William Pesek,[35] Quartz reporter Gwynn Guilford,[36][37] The Wall Street Journal Digital Network Editor-In-Chief Randall W. Forsyth,[38] United Courier Services,[39] and China Learning Curve.[40]

Russian ruble

On November 10, 2014, the Central Bank of Russia decided to fully float the ruble in response to its biggest weekly drop in 11 years (roughly 6 percent drop in value against USD).[41] In doing so, the central bank abolished the dual-currency trading band within which the ruble had previously traded. The central bank also ended regular interventions that had previously limited sudden movements in the currency's value. Earlier steps to raise interest rates by 150 basis points to 9.5 percent failed to stop the ruble's decline. The central bank sharply adjusted its macroeconomic forecasts. It stated that Russia's foreign exchange reserves, then the fourth largest in the world at roughly $480 billion, were expected to decrease to $422 billion by the end of 2014, $415 billion in 2015, and under $400 billion in 2016, in an effort to prop up the ruble.[42]

On December 11, the Russian central bank raised the key rate by 100 basis points, from 9.5 percent to 10.5 percent.[43]

Declining oil prices and economic sanctions imposed by the West in response to the Russian annexation of Crimea led to worsening Russian recession. On December 15, 2014, the ruble dropped as much as 19 percent, the worst single-day drop for the ruble in 16 years.[44][45]

The Russian central bank response was twofold: first, continue using Russia's large foreign currency reserve to buy rubles on the forex market in order to maintain its value through artificial demand on a larger scale. The same week of the December 15 drop, the Russian central bank sold an additional $700 million in foreign currency reserves, in addition to the nearly $30 billion spent over previous months to stave off decline. Russia's reserves then sat at $420 billion, down from $510 billion in January 2014.

Second, increase interest rates dramatically. The central bank increased the key interest rate 650 basis points from 10.5 percent to 17 percent, the world's largest increase since 1998, when Russian rates soared past 100 percent and the government defaulted on its debt. The central bank hoped the higher rates would provide incentives to the forex market to maintain rubles.[46][47]

From February 12 to 19, 2015, the Russian central bank spent an additional $6.4 billion in reserves. Russian foreign reserves at this point stood at $368.3 billion, greatly below the central bank's initial forecast for 2015. Since the collapse in global oil prices in June 2014, Russian reserves have fallen by over $100 billion.[48]

As oil prices began to stabilize in February–March 2015, the ruble likewise stabilized. The Russian central bank has decreased the key rate from its high of 17 percent to its current 15 percent as of February 2015. Russian foreign reserves currently sit at $360 billion.[49][50]

In March and April 2015, with the stabilization of oil prices, the ruble has made a surge, which Russian authorities have deemed a "miracle". Over three months, the ruble gained 20 percent against the US dollar, and 35 percent against the euro. The ruble was the best performing currency of 2015 in the forex market. Despite being far from its pre-recession levels (in January 2014, US$1 equaled roughly 33 Russian rubles), it is currently trading at roughly 52 rubles to US$1 (an increase in value from 80 rubles to US$1 in December 2014).[51]

Current Russian foreign reserves sit at $360 billion. In response to the ruble's surge, the Russian central bank lowered its key interest rate further to 14 percent in March 2015. The ruble's recent gains have been largely accredited to oil price stabilization and the calming of conflict in Ukraine.[52][53]

See also


  1. ^ Joseph E. Gagnon, “Policy Brief 12-19”, Peterson Institute for International Economic, 2012.
  2. ^ Tim Ferguson (21 June 2012). "Anna Schwartz, Monetary Historian, RIP". Forbes. Retrieved 6 January 2017.
  3. ^ Bank for International Settlements, BIS Paper No. 24, Foreign exchange market intervention in emerging markets: motives, techniques and implications, (2005).
  4. ^ Chutasripanich, Nuttathum; Yetman, James (2015), "Foreign exchange intervention: strategies and effectiveness" (PDF), Bank for International Settlements (BIS), BIS Working Papers (499), p. 34, ISSN 1682-7678
  5. ^ "Foreign exchange market intervention in emerging market economies: an overview", Bank for International Settlements (BIS) (24), p. 3, May 2005, On 2 and 3 December 2004, the BIS hosted a meeting of Deputy Governors of central banks from major emerging market economies to discuss foreign exchange market intervention.
  6. ^ Lucio Sarno and Mark P. Taylor, “Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?,” Journal of Economic Literature 39.3 (2001): 839-68.
  7. ^ Mohanty, M. S. (2013), "Market volatility and foreign exchange intervention in EMEs: what has changed?" (PDF), Bank for International Settlements (BIS), BIS Working Papers (73), p. 10
  8. ^ Obstfeld, Maurice (1996). Foundations of International Finance. Boston: Massachusetts Institute of Technology. pp. 597–599. ISBN 0-262-15047-6.
  9. ^ Neely, Christopher (November–December 1999). "An Introduction to Capital Controls". Federal Reserve Bank of St. Louis Review: 13–30.
  10. ^ Tyalor, Mark; Lucio Sarno (September 2001). "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?" (PDF). Journal of Economic Literature: 839–868.
  11. ^ Mussa, Michael (1981). The Role of Official Intervention. VA: George Mason University Press.
  12. ^ Joseph E. Gagnon, "Policy Brief: Combating Widespread Currency Manipulation", Peterson Institute for International Economics, (2012).
  13. ^ Munson, Peter J. (2013). War, Welfare & Democracy: Rethinking America's Quest for the End of History. Potomac Books, Inc. p. 117. ISBN 1612345395. Retrieved 9 January 2017.
  14. ^ Jared Bernstein, “How to Stop Currency Manipulation”, The New York Times, 2015
  15. ^ "System Open Market Account". New York Fed. Retrieved 5 January 2017.
  16. ^ Sovereign Wealth Fund Institute. "Hands Slapped: 5 Banks Get Hit with Fines for Currency Manipulation". Retrieved 5 January 2017.
  17. ^ Gerlach, Petra; Rober McCauley; Kazuo Ueda (October 2011). "Currency Intervention and the Global Portfolio Balance Effect".
  18. ^ "Swiss franc jumps 30 percent after Swiss National Bank dumps euro ceiling". Reuters. January 15, 2015.
  19. ^ "Why the Swiss unpegged the franc". The Economist. January 18, 2015.
  20. ^ "Swiss National Bank ramps up currency intervention after Brexit" . Reuters. July 4, 2016.
  21. ^ Takatoshi Ito, "Japanese Monetary Policy: 1998-2005 and Beyond," Bank of International Settlements, p.105-107.
  22. ^ Takatoshi,p.105.
  23. ^ Richard Duncan, The Dollar Crisis: Causes, Consequences, Cures, (2011).
  24. ^ Mayumi Otsuma, “Japan to Buy European Debt with Currency Reserves to Weaken Yen”, Bloomberg News, 2013: par. 1-8.
  25. ^ Urbanek, Vladimir (4 March 2013), "China's foreign exchange reserves at the end of 2012 grew to 3.3 trillion, from +700% L.04", KurzyCZ, retrieved 5 May 2015
  26. ^ Krugman, Paul (February 4, 2010). "Chinese Rumbles". The New York Times. Retrieved May 16, 2017.
  27. ^ Jonathan M. Finegold Catalan, "A Closer Look at China's Currency Manipulation", Ludwig von Mises Institute, (2010).
  28. ^ "None". Retrieved 2016-08-03.
  29. ^ "National Taxpayers Union - Donald Trump Wrong on Trade". Retrieved 2016-08-03.
  30. ^ "Donald Trump Should Apologize to China, and Turn His Wrath On the Fed | RealClearMarkets". Retrieved 2016-08-03.
  31. ^ Calomiris, Charles W. "Trump Gets His Facts Wrong On China". Retrieved 2016-08-03.
  32. ^
  33. ^
  34. ^ Frankel, Jeffrey (2015-02-20). "The Non-Problem of Chinese Currency Manipulation". Retrieved 2016-08-03.
  35. ^ Pesek, Willie (2015-05-28). "Stop Calling China a Currency Manipulator". Bloomberg View. Retrieved 2016-08-03.
  36. ^ Guilford, Gwynn. "Donald Trump has no idea what he's talking about on China". Retrieved 2016-08-03.
  37. ^ "Donald Trump Has No idea What He's Talking About on China". Retrieved 2016-08-03.
  38. ^ Forsyth, Randall W. "Trump Is Wrong on China". Retrieved 2016-08-03.
  39. ^ "TRUMP WRONG ABOUT CHINA'S CURRENCY MOVE". Retrieved 2016-08-03.
  40. ^ "Why Donald Trump is mostly wrong about China | The China Learning Curve". Retrieved 2016-08-03.
  41. ^ " - RUB/USD Chart". Retrieved 2016-08-03.
  42. ^ Moscow, Kathrin Hille- (2014-11-10). "Russia presses ahead with fully floating the rouble". Financial Times. ISSN 0307-1766. Retrieved 2016-08-03.
  43. ^ Aleksashenko, Sergey (2014-12-20). "CBR shows how not to intervene". Financial Times. ISSN 0307-1766. Retrieved 2016-08-03.
  44. ^ Kitroeff, Natalie (December 16, 2014). "Here's Why the Russian Ruble Is Collapsing". Bloomberg.
  45. ^ Tanas, Olga (December 15, 2014). "Russia Defends Ruble With Biggest Rate Rise Since 1998". Bloomberg.
  46. ^ Aleksashenko, Sergey (2014-12-20). "CBR shows how not to intervene". Financial Times. ISSN 0307-1766. Retrieved 2016-08-03.
  47. ^ Ostroukh, Andrey; Albanese, Chiara (December 3, 2014). "Bank of Russia Spent $700 Million Dec. 1 Trying to Ease Ruble Pressure". The Wall Street Journal.
  48. ^
  49. ^ "Commodities: Latest Crude Oil Price & Chart". Retrieved 2016-08-03.
  50. ^ Sachais, Andrew (2015-03-17). "Why The Russian Ruble Is Stabilizing". Retrieved 2016-08-03.
  51. ^ Kottasova, Ivana (April 10, 2015). "The Russian ruble is up 20% against the dollar". CNN.
  52. ^ Kottasova, Ivana (April 10, 2015). "The Russian ruble is up 20% against the dollar". CNN.
  53. ^ Ranasinghe, Dhara (2015-04-10). "Russia's rouble: From down-and-out to darling". CNBC. Retrieved 2016-08-03.
Bureau de change

A bureau de change (plural bureaux de change, both ) (British English) or currency exchange (American English) is a business where people can exchange one currency for another.

Currency appreciation and depreciation

Currency depreciation is the loss of value of a country's currency with respect to one or more foreign reference currencies, typically in a floating exchange rate system in which no official currency value is maintained. Currency appreciation in the same context is an increase in the value of the currency. Short-term changes in the value of a currency are reflected in changes in the exchange rate.

Currency band

A currency band is a range of values for the exchange rate for a country’s currency which the country’s central bank acts to keep the exchange rate within.The central bank selects a range, or "band", of values at which to set their currency, and will intervene in the market or return to a fixed exchange rate if the value of their currency shifts outside this band. This allows for some revaluation, but tends to stabilize the currency's value within the band. In this sense, it is a compromise between a fixed (or "pegged") exchange rate and a floating exchange rate.For example, the exchange rate of the renminbi of the mainland of the People's Republic of China has recently been based upon a currency band; the European Economic Community's "snake in the tunnel" was a similar concept that failed, but ultimately led to the establishment of the European Exchange Rate Mechanism (ERM) and ultimately the Euro.

Currency board

A currency board is a monetary authority which is required to maintain a fixed exchange rate with a foreign currency. This policy objective requires the conventional objectives of a central bank to be subordinated to the exchange rate target.

Currency future

A currency future, also known as an FX future or a foreign exchange future, is a futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the purchase date; see Foreign exchange derivative. Typically, one of the currencies is the US dollar. The price of a future is then in terms of US dollars per unit of other currency. This can be different from the standard way of quoting in the spot foreign exchange markets. The trade unit of each contract is then a certain amount of other currency, for instance €125,000. Most contracts have physical delivery, so for those held at the end of the last trading day, actual payments are made in each currency. However, most contracts are closed out before that. Investors can close out the contract at any time prior to the contract's delivery date.

Currency manipulator

"Currency manipulator" is a term used to indicate countries that manipulate the rate of exchange for purposes of preventing effective balance of payments adjustment or gaining unfair competitive advantage in international trade. It is also applied to countries that intervene in their own foreign exchange markets.

Currency manipulation or currency intervention is a monetary policy operation which occurs when a government or central bank buys or sells foreign currency in exchange for their own domestic currency, generally with the intention of influencing the exchange rate and trade policy. Policymakers may have different reasons for currency manipulation, such as controlling inflation, maintaining international competitiveness, financial stability, etc.


In modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency or currency basket. In contrast, a depreciation is a decrease in a currency's value (relative to other major currency benchmarks) due to market forces under a floating exchange rate, not government or central bank policy actions.

A central bank maintains a fixed value of its currency by standing ready to buy or sell foreign currency with its own currency at a stated rate; a devaluation is a change in this stated rate that renders the foreign currency more expensive in terms of the home currency.

The opposite of devaluation, a change in the fixed rate making the foreign currency less expensive, is called a revaluation.

Related but distinct concepts include inflation, which is a market-determined decline in the value of the currency in terms of goods and services (related to its purchasing power). Altering the face value of a currency without reducing its exchange rate is a redenomination, not a devaluation or revaluation.

Foreign exchange fraud

Foreign exchange fraud is any trading scheme used to defraud traders by convincing them that they can expect to gain a high profit by trading in the foreign exchange market. Currency trading became a common form of fraud in early 2008, according to Michael Dunn of the U.S. Commodity Futures Trading Commission.The foreign exchange market is at best a zero-sum game,

meaning that whatever one trader gains, another loses. However, brokerage commissions and other transaction costs are subtracted from the results of all traders, making foreign exchange a negative-sum game.

Foreign exchange market

The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of trading volume, it is by far the largest market in the world, followed by the Credit market.The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. Since currencies are always traded in pairs, the foreign exchange market does not set a currency's absolute value but rather determines its relative value by setting the market price of one currency if paid for with another. Ex: US$1 is worth X CAD, or CHF, or JPY, etc.

The foreign exchange market works through financial institutions and operates on several levels. Behind the scenes, banks turn to a smaller number of financial firms known as "dealers", who are involved in large quantities of foreign exchange trading. Most foreign exchange dealers are banks, so this behind-the-scenes market is sometimes called the "interbank market" (although a few insurance companies and other kinds of financial firms are involved). Trades between foreign exchange dealers can be very large, involving hundreds of millions of dollars. Because of the sovereignty issue when involving two currencies, Forex has little (if any) supervisory entity regulating its actions.

The foreign exchange market assists international trade and investments by enabling currency conversion. For example, it permits a business in the United States to import goods from European Union member states, especially Eurozone members, and pay Euros, even though its income is in United States dollars. It also supports direct speculation and evaluation relative to the value of currencies and the carry trade speculation, based on the differential interest rate between two currencies.In a typical foreign exchange transaction, a party purchases some quantity of one currency by paying with some quantity of another currency.

The modern foreign exchange market began forming during the 1970s. This followed three decades of government restrictions on foreign exchange transactions under the Bretton Woods system of monetary management, which set out the rules for commercial and financial relations among the world's major industrial states after World War II. Countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed per the Bretton Woods system.

The foreign exchange market is unique because of the following characteristics:

its huge trading volume, representing the largest asset class in the world leading to high liquidity;

its geographical dispersion;

its continuous operation: 24 hours a day except for weekends, i.e., trading from 22:00 GMT on Sunday (Sydney) until 22:00 GMT Friday (New York);

the variety of factors that affect exchange rates;

the low margins of relative profit compared with other markets of fixed income; and

the use of leverage to enhance profit and loss margins and with respect to account size.As such, it has been referred to as the market closest to the ideal of perfect competition, notwithstanding currency intervention by central banks.

According to the Bank for International Settlements, the preliminary global results from the 2016 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity show that trading in foreign exchange markets averaged $5.09 trillion per day in April 2016. This is down from $5.4 trillion in April 2013 but up from $4.0 trillion in April 2010. Measured by value, foreign exchange swaps were traded more than any other instrument in April 2016, at $2.4 trillion per day, followed by spot trading at $1.7 trillion.The $5.09 trillion break-down is as follows:

$1.654 trillion in spot transactions

$700 billion in outright forwards

$2.383 trillion in foreign exchange swaps

$96 billion currency swaps

$254 billion in options and other products

Foreign exchange option

In finance, a foreign exchange option (commonly shortened to just FX option or currency option) is a derivative financial instrument that gives the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. See Foreign exchange derivative.

The foreign exchange options market is the deepest, largest and most liquid market for options of any kind. Most trading is over the counter (OTC) and is lightly regulated, but a fraction is traded on exchanges like the International Securities Exchange, Philadelphia Stock Exchange, or the Chicago Mercantile Exchange for options on futures contracts. The global market for exchange-traded currency options was notionally valued by the Bank for International Settlements at $158.3 trillion in 2005.

Foreign exchange spot

A foreign exchange spot transaction, also known as FX spot, is an agreement between two parties to buy one currency against selling another currency at an agreed price for settlement on the spot date. The exchange rate at which the transaction is done is called the spot exchange rate. As of 2010, the average daily turnover of global FX spot transactions reached nearly 1.5 trillion USD, counting 37.4% of all foreign exchange transactions. FX spot transactions increased by 38% to 2.0 trillion USD from April 2010 to April 2013.

Foreign exchange swap

In finance, a foreign exchange swap, forex swap, or FX swap is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates (normally spot to forward) and may use foreign exchange derivatives. An FX swap allows sums of a certain currency to be used to fund charges designated in another currency without acquiring foreign exchange risk. It permits companies that have funds in different currencies to manage them efficiently.

Japanese yen

The yen (Japanese: 円, Hepburn: en, symbol: ¥; code: JPY; also abbreviated as JP¥) is the official currency of Japan. It is the third most traded currency in the foreign exchange market after the United States dollar and the euro. It is also widely used as a reserve currency after the U.S. dollar, the euro, and the pound sterling.

The concept of the yen was a component of the Meiji government's modernization program of Japan's economy, which postulated the pursuit of a uniform currency throughout the country, modelled after the European decimal currency system.

Before the Meiji Restoration, Japan's feudal fiefs all issued their own money, hansatsu, in an array of incompatible denominations. The New Currency Act of 1871 did away with these and established the yen, which was defined as 1.5 g (0.048 troy ounces) of gold, or 24.26 g (0.780 troy ounces) of silver, as the new decimal currency. The former han (fiefs) became prefectures and their mints private chartered banks, which initially retained the right to print money. To bring an end to this situation, the Bank of Japan was founded in 1882 and given a monopoly on controlling the money supply.Following World War II the yen lost much of its prewar value. To stabilize the Japanese economy the exchange rate of the yen was fixed at ¥360 per $1 as part of the Bretton Woods system. When that system was abandoned in 1971, the yen became undervalued and was allowed to float. The yen had appreciated to a peak of ¥271 per $1 in 1973, then underwent periods of depreciation and appreciation due to the 1973 oil crisis, arriving at a value of ¥227 per $1 by 1980.

Since 1973, the Japanese government has maintained a policy of currency intervention, and the yen is therefore under a "dirty float" regime. This intervention continues to this day. The Japanese government focuses on a competitive export market, and tries to ensure a low yen value through a trade surplus. The Plaza Accord of 1985 temporarily changed this situation from its average of ¥239 per US$1 in 1985 to ¥128 in 1988 and led to a peak value of ¥80 against the U.S. dollar in 1995, effectively increasing the value of Japan’s GDP to almost that of the United States. Since that time, however, the yen has greatly decreased in value. The Bank of Japan maintains a policy of zero to near-zero interest rates and the Japanese government has previously had a strict anti-inflation policy.It is also not uncommon for prices to be referred with the symbol $, in this case it refers to 100 yen before tax or 108 yen after tax.

Linked exchange rate system in Hong Kong

A linked exchange rate system is a type of exchange rate regime that pegs the exchange rate of one currency to another. It is the exchange rate system implemented in Hong Kong by Honorary Vice-President at the University of Hong Kong, Professor Y.C. Jao, to stabilise the exchange rate between the Hong Kong dollar (HKD) and the United States dollar (USD). The Macao pataca (MOP) is similarly linked to the Hong Kong dollar.

Unlike a fixed exchange rate system, the government or central bank does not actively interfere in the foreign exchange market by controlling supply and demand of the currency in order to influence the exchange rate. The exchange rate is instead stabilized by an exchange mechanism, whereby the Hong Kong Monetary Authority (HKMA) authorises note-issuing banks to issue new banknotes provided that they deposit an equivalent value of US dollars with the HKMA. The Government, through the HKMA, authorises three commercial banks to issue banknotes:

The Hongkong and Shanghai Banking Corporation Limited;

the Standard Chartered Bank (Hong Kong) Limited; and

the Bank of China (Hong Kong) Limited.Notes (HK$10 only) are also issued by the HKMA itself because of the continuing demand for small value notes among the public.

Louvre Accord

The Statement of the G6 Finance Ministers and Central Bank Governors, commonly known as Louvre Accord was an agreement, signed on February 22, 1987, in Paris, that aimed to stabilize the international currency markets and halt the continued decline of the US Dollar caused by the Plaza Accord from 1985. It is considered - from a relational international contract view, as a rational compromise solution between two ideal-type extremes of international monetary regimes: the perfectly flexible and the perfectly fixed exchange rates.The agreement was signed by France, West Germany, Japan, Canada, the United States and the United Kingdom. The Italian government was invited to sign the agreement but declined.

Managed float regime

Managed float regime is the current international financial environment in which exchange rates fluctuate from day to day, but central banks attempt to influence their countries' exchange rates by buying and selling currencies to maintain a certain range. The peg used is known as a crawling peg.

In an increasingly integrated world economy, the currency rates impact any given country's economy through the trade balance. In this aspect, almost all currencies are managed since central banks or governments intervene to influence the value of their currencies. According to the International Monetary Fund, as of 2014, 82 countries and regions used a managed float, or 43% of all countries, constituting a plurality amongst exchange rate regime types.

Plaza Accord

The Plaza Accord was a joint-agreement between France, West Germany, Japan, the United States, and the United Kingdom, to depreciate the U.S. dollar in relation to the Japanese yen and German Deutsche Mark by intervening in currency markets. The five governments signed the accord on September 22, 1985, at the Plaza Hotel in New York City. The U.S. dollar depreciated significantly since the agreement until it was replaced by the Louvre Accord in 1987.

Retail foreign exchange trading

Retail foreign exchange trading is a small segment of the larger foreign exchange market where individuals speculate on the exchange rate between different currencies. This segment has developed with the advent of dedicated electronic trading platforms and the internet, which allows individuals to access the global currency markets. In 2016, it was reported that retail foreign exchange trading represented 5.5% of the whole foreign exchange market ($282 billion in daily trading turnover).Prior to the development of forex trading platforms in the late 90s, forex trading was restricted to large financial institutions. It was the development of the internet, trading software, and forex brokers allowing trading on margin, that started the growth of retail trading. Today, traders are able to trade spot currencies with market makers on margin. This mean they need to put down only a small percentage of the trade size and can buy and sell currencies in seconds.

Smithsonian Agreement

The Smithsonian Agreement, announced in December 1971, created a new dollar standard, whereby the currencies of a number of industrialized nations were pegged to the US dollar. These currencies were allowed to fluctuate by 2.25% against the dollar. The Smithsonian Agreement was created by the Group of Ten (G-10) nations (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, and the United States) raised the price of gold to 38 dollars, an 8.5% increase over the previous price at which was the US government had promised to redeem dollars for gold. In effect, the changing gold price devalued the dollar by 7.9%.


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