The Political Economy of Foreign Exchange Interventions

IMF Working Papers, June 26, 2026

Source details

Research question: Whether political economy factors affect Foreign Exchange Intervention (FXI) policy across countries.
Scope: Sample of 28 countries including both advanced (AEs) and emerging (EMs) economies over the period 2000-2019.
Central focus: Whether central banks implement FX sales (leaning against depreciations) during electoral periods.

EMs with competitive elections tend to implement more and larger FX sales in the pre-electoral period compared to the post-election period.
The pre-electoral increase in FX sales is driven by countries where political pressures on central bank governors are more prevalent.
Monetary policy transparency has the potential to mitigate politically driven FXI during electoral periods.
Politically motivated FX sales could hamper the ability of central banks to effectively respond to large shocks.

Exchange rate movements affect the purchasing power of residents or voters and are perceived as a barometer of government performance, creating incentives to influence exchange rate valuation during elections.
Political popularity considerations appear to motivate greater FX sales in EMs with competitive elections.
Direct political pressures on central bank governors strengthen the link between electoral cycles and FXI behavior.

Enhance monetary policy transparency as a tool to reduce politically driven FX interventions during electoral periods.
Protect central bank decision-making from political pressures to preserve the ability to respond effectively to large shocks.
Recognize the trade-off between short-term political objectives (stabilizing exchange rates pre-election) and central banks’ capacity to manage macroeconomic shocks.

Empirical focus on FX sales (leaning against depreciations) by central banks.
Cross-country analysis covering both AEs and EMs in a 28-country sample for 2000-2019.

The Political Economy of Foreign Exchange Interventions, Kodjovi M. Eklou, June 26, 2026