Why FX Intervention Almost Never Works to Halt a Currency Slide

Examining Causes of Currency Slides

Emerging market currencies have been under considerable stress this spring and summer. Many policymakers in affected countries have been blaming the US Federal Reserve's exit plans for its asset purchases, known as quantitative easing, for their currency's woes. Brazil, for example, has even announced a large, $60 billion, foreign exchange intervention program to try to dampen the slide of the real. Unfortunately, our analysis suggests, first, that the Fed's potential exit from QE is only a small part of emerging market currency problems, and second, that intervention activities are unlikely to work although they will certainly drain the resources of the central bank.

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About the Author

Bluford “Blu” Putnam has served as Managing Director and Chief Economist of CME Group since May 2011. With more than 35 years of experience in the financial services industry and concentrations in central banking, investment research, and portfolio management, Blu serves as CME Group’s spokesperson on global economic conditions.

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