Official Intervention in the Foreign Exchange Market: Elements of Best Practice

Author/Editor:

Jorge I Canales Kriljenko ; Cem Karacadag ; Roberto Guimarães-Filho

Publication Date:

July 1, 2003

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper offers guidance on the operational aspects of official intervention in the foreign exchange market, particularly in developing countries with flexible exchange rate regimes. A brief survey of the literature and country experience is followed by an analysis of the objectives, timing, amount, degree of transparency, and choice of markets and counterparties in conducting intervention. The analysis highlights the difficulty of detecting exchange rate misalignments and disorderly markets, and argues in favor of parsimony in official intervention. Determining the timing and amount of intervention is a highly subjective excercise, and some degree of discretion is almost necessary, though policy rules may serve as "rules of thumb."

Series:

Working Paper No. 2003/152

Subject:

Banking Currencies Currency markets Exchange rates Financial markets Foreign exchange Foreign exchange intervention Money

English

Publication Date:

July 1, 2003

ISBN/ISSN:

9781451857115/1018-5941

Stock No:

WPIEA1522003

Pages:

41

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