How to devalue exchange rates, without building up reserves: Strategic theory for central banking

Central banks, wanting to devalue their currency, often intervene in the foreign exchange market by buying up foreign currency. Such interventions even if effective lead to a build up of foreign exchange reserves. This paper argues that the coupling of devaluation and reserve build up can be avoided if the central bank intervention takes the form of a ‘schedule’, that is, commitment to buying and selling conditional on the exchange rate.

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Year of publication:	2012
Authors:	Basu, Kaushik
Published in:	Economics Letters. - Elsevier, ISSN 0165-1765. - Vol. 117.2012, 3, p. 758-761
Publisher:	Elsevier
Subject:	Exchange rate \| Central bank intervention \| Currency dealers \| Oligopoly

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Type of publication:	Article
Classification:	L31 - Nonprofit Institutions ; D43 - Oligopoly and Other Forms of Market Imperfection ; F31 - Foreign Exchange ; G20 - Financial Institutions and Services. General
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010594202