Motives for Foreign Exchange Interventions as Currency Policy Instrument of Monetary Authorities

Central banks are using foreign exchange interventions as a special tool for extraordinary situations on FX market to achieve specified goals of monetary policy. This paper focuses on description and definition of foreign exchange intervention, methods of interventions with an emphasis on the goals of interventions under different currency regimes. Monetary authorities are intervening on foreign exchange market to achieve a variety of macroeconomic objectives like controlling inflation, maintaining competitiveness but mostly when changes of the domestic currency can be danger for stability of economy or danger for financial stability. Specific motives for intervention are like to change with the level of economic development and changes of currency regimes. Foreign exchange interventions are effective in short-run but they are not independent tool. Their effectiveness depends also on coordination of currency policy and macroeconomic policy. Foreign exchange interventions should be supported by other monetary regulations to influence exchange rate, dampen exchange rate volatility or supply liquidity to foreign exchange markets.Zadanie pt. „Digitalizacja i udostępnienie w Cyfrowym Repozytorium Uniwersytetu Łódzkiego kolekcji czasopism naukowych wydawanych przez Uniwersytet Łódzki” nr 885/P-DUN/2014 zostało dofinansowane ze środków MNiSW w ramach działalności upowszechniającej nauk