Foreign Exchange Intervention - Bank of Sierra Leone

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6. WHY DO POLICYMAKERS WANT STABILITY IN EXCHANGE RATES? 1. Stability in Exchange Rates More (short and medium term) stability in prices Planning easier for businesses, individuals Less uncertainty in general (although exchange rate stability may imply interest rate instability!) Smaller countries worry about importing inflation. Beggar-thy-neighbor trade policies (temporary gains in competitive advantage with weak currencies) 10
6. (Cont’d.) WHY DO POLICYMAKERS WANT STABILITY IN EXCHANGE RATES? 2. Intervention is sometimes used to help avert currency crises, full scale speculative attacks. Sharp unexpected currency realignments are costly. Begs larger question: when is a fixed rate / currency peg truly unsustainable? If economic fundamentals are inconsistent with the currency strength, intervention may not be effective. Exchange rate regime exit strategies need to be developed. Difficult to determine whether shocks are temporary or permanent (and if realignment should be avoided). 11
Page 1 and 2: 1. THE EFFECTIVENESS OF FOREIGN EXC
Page 3 and 4: 2. FOREIGN EXCHANGE INTERVENTION De
Page 5 and 6: 3. RELEVANCE OF FOREIGN EXCHANGE RA
Page 7 and 8: 4. (Cont’d.) DEVELOPMENTS OF FORE
Page 9: 5 (Cont’d.) The latter is amenabl
Page 13 and 14: THEORETICAL FRAMEWORK OF FX 8. INTE
Page 15 and 16: 8. (Cont’d.) THEORETICAL FRAMEWOR
Page 17 and 18: 10. 1. The Starting Point Review of
Page 19 and 20: 10. (Cont’d.) What if the monetar
Page 21 and 22: 11. IS FOREIGN EXCHANGE INTERVENTIO
Page 23 and 24: 12. THE EFFECTIVENESS OF FOREIGN EX
Page 25 and 26: 13.(Cont’d.) Secondly, using mark

Foreign Exchange Intervention - Bank of Sierra Leone

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