To maintain their economy and its prosperity, states use various tools. One of them is currency intervention. What it is? What is it used for? What are the results? And what is the situation with this tool in the Russian Federation? How actively is it used?
What is currency intervention?
To begin with, we will determine the terminological component. Currency intervention is a single targeted impact of the state’s main bank on the exchange rate and the market. It is carried out through the purchase or sale of a large consignment of money from another country. Currency intervention is carried out in order to regulate the rate indicators in the interests of their state. This value refers to an internal change in a country's position. And what about interstate relations?
International importance
In the geopolitics of the member countries of these relationships, they pursue a single course with respect to third states. In international practice, the intervention is carried out with the participation of participants in regional zones where the stability of courses is observed. Such monetary policy actively uses central banks and treasuries to carry out the necessary monetary operations. An object of influence may be its own currency unit, or the financial system of a foreign state. Direct influence is due to the purchase / sale of money / gold. Based on this, it can be said that conducting currency interventions is a large-scale and substantive foreign exchange transaction that takes place during a clearly defined (usually short-term) period.
The effect of foreign exchange interventions
This tool is no less important than monetary policy and interest rates on loans. But it must be used more wisely, since the effectiveness of this action can vary over a wide range. So that you understand the importance of what foreign exchange policy has, one example can be given: in the world by 1985 there was an economic crisis of the so-called “West”. Its basis was too strong a dollar, which made exporting products from the US to other countries very expensive.
And one economy will collapse - after it, and others. Therefore, in 1985, the so-called Plaza agreement on foreign exchange intervention was concluded. As a result, the purchasing power of the dollar in two years collapsed by 50 percent, which allowed the United States to slow down the growing budget deficit due to increased exports. Of course, then negative consequences could not be completely avoided, because the states parties to this agreement were too slow in fulfilling their obligations.
Most affected were Japan, which entered the period called the “decade-long decline”. These are the consequences of monetary policy. But it requires that all states parties to the agreement accurately and urgently fulfill their obligations.
Central banks or treasuries in the open market sell / buy foreign currency in order to influence its value. Often the use of this tool is considered the use of the last trump card, which reduces the effectiveness of the intervention due to panic. Therefore, “jerking” stabilization of markets is important.
Training
It must be remembered that the amount of money for currency intervention is limited. But the state has at its disposal a number of other ways of influencing the market. Therefore, the monetary policy is carried out on the basis of the "snowball".The concept of verbal intervention plays an important role in this. By it is understood the use of currency instruments, when this is not necessary. The second name for this type of influence is proactive intervention. But this is not the only tactic of influence.
Efficiency
The previously considered proactive impact is only one type of similar currency instrument. Unilateral intervention is also important from a practical point of view. This type implies the implementation of this tool by the central bank of the state separately from foreign institutions of this type. It is believed that such an intervention has the smallest effect. If two central banks deal with the problem, then this is considered a more serious signal for the currency markets.
The most effective is the multilateral use of this tool. After all, potentially agreements of this type may result in a change in long-term trends. But, ultimately, the level of confidence in the government and the existence of rational steps on its part in other areas also affect the effectiveness of actions. As an additional gain, you can change monetary policy of the state, to get a more significant state.
Foreign exchange intervention of the Bank of Russia
This phrase is usually used in relation to the issue of support for the ruble against the US dollar. For this, the sale of dollars / euros is carried out in order to influence the purchasing power of the national currency. Speaking about our realities, it should be noted that this is done to maintain a stable course. But it should be borne in mind that spending comes from foreign exchange reserves. And with significant pressure or disruption of the system, a situation may arise when they are exhausted without preventing the depreciation of the national currency.
In this case, they talk about creating a catastrophic situation in the economy. Currency interventions by the Central Bank can be the opposite: for this purpose, the purchase of monetary units of foreign states is carried out. But given the current situation in the economic sector of the country, such a policy is harmful.
