Foreign Exchange Intervention - Bank of Sierra Leone
Foreign Exchange Intervention - Bank of Sierra Leone
Foreign Exchange Intervention - Bank of Sierra Leone
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
10 (Cont’d.)<br />
REVIEW OF THE MECHANICS OF FX<br />
INTERVENTION<br />
On the day <strong>of</strong> these transactions, Dollar sales put downward<br />
pressure on the dollar’s leone value.<br />
Suppose the BSL does nothing more. What sustains the new, lower<br />
value <strong>of</strong> the dollar after the transaction?<br />
The decline in bank reserves leads to a smaller S.L money supply<br />
and higher S.L interest rates. This maintains the stronger leone.<br />
2. <strong>Intervention</strong> to Weaken the Dollar / Support the leone:<br />
BSL Sells dollars, Buys <strong>Leone</strong> in Currency Markets<br />
A <strong>Bank</strong> <strong>of</strong> <strong>Sierra</strong> <strong>Leone</strong> L A Commercial <strong>Bank</strong> L<br />
------------------------------------------------ ----------------------------------------------<br />
-U.S Dollars 4 (Le11,651.40) -Le11,651.40 <strong>Bank</strong> Reserves<br />
- Le11,651.40 <strong>Bank</strong> Reserves<br />
+U.S $ 4 (=Le11,651.40)<br />
18
Change language