A currency intervention is a monetary policy tool used by central banks or governments to influence the exchange rate of their domestic currency against other currencies in the foreign exchange market.
It involves the central bank buying or selling its own domestic currency in exchange for foreign currencies, with the intention of raising or lowering the value of its currency.[1][2]
It can be done directly through actual transactions in the forex market (operational intervention), or indirectly through verbal communication and policy signals (verbal intervention).[5]
Interventions aim to stabilize excessive volatility, prevent overvaluation/undervaluation of the currency, support exports/imports, or maintain financial stability.[2][4]
They can be unilateral actions by one central bank, or coordinated multilaterally with other central banks (concerted intervention).[5]
Interventions can be "sterilized" by offsetting the impact on domestic money supply through open market operations, or "unsterilized" by allowing money supply changes.[2][5]
Major currency interventions in recent history include the Plaza Accord in 1985 to weaken the US dollar, and actions by Switzerland and Japan to curb strength of their currencies.[2][4]
So in essence, currency interventions are policy tools that allow central banks to directly influence forex markets and exchange rates, usually with the goal of preventing excessive volatility or misalignment that could harm the domestic economy.[1][2][4][5]
Key Points About Currency Interventions: