Using The CSU Online Library Explore Methods By Which Govern

Using The Csu Online Library Explore Methods By Which Governments Int

Using the CSU Online Library, explore methods by which governments intervene in the foreign exchange markets to benefit their economies. Find at least five unique resources that support your research. Also, be sure to distinguish between direct and indirect methods of intervention and provide several "real-world" examples of intervention (and the results). Review articles and sources with specific questions in mind (i.e., Does this article support my topic? How does this article apply to my topic? How am I going to use the details of this article in my paper?). The Research Paper must meet the following requirements: ï‚· Be at least 500 words in length (not including the title page and references page) ï‚· Include at least five peer-reviewed articles ï‚· Use APA Style Format your Research Paper using APA style. Use your own words, and include citations and references as needed to avoid plagiarism.

Paper For Above instruction

The role of government intervention in the foreign exchange (forex) market is a vital aspect of international economic policy, as countries aim to stabilize their economies, control inflation, boost exports, or prevent currency manipulation. Governments employ various methods—both direct and indirect—to influence currency values, and these interventions often have significant global impacts. This paper explores these strategies, supported by scholarly sources, and examines real-world examples illustrating their effectiveness.

Direct Methods of Government Intervention

Direct intervention involves governments actively buying or selling their currencies in the forex markets to influence the exchange rate directly. Central banks, as the primary authorities, often carry out these operations either openly or secretly. For instance, the Swiss National Bank (SNB) engaged in direct intervention in 2011 by capping the Swiss franc’s appreciation to avoid harming exports, purchasing foreign currencies to weaken the franc (Bergman & Kozicki, 2015). Similar actions were taken by the Bank of Japan (BOJ) in 2013, where it bought foreign assets to devalue the yen and stimulate economic growth (Kim & Lee, 2017).

These interventions aim to stabilize the currency, prevent excessive volatility, or achieve targeted economic objectives, such as boosting exports by devaluing the national currency. However, direct interventions require significant foreign exchange reserves and can be costly. Governments also sometimes broadcast interventions to influence market expectations, thereby preempting volatility.

Indirect Methods of Government Intervention

Indirect intervention includes policy measures that influence currency valuation without direct buying or selling in the forex market. These methods include monetary policy adjustments, such as changing interest rates, altering inflation expectations, or implementing capital controls.

For example, the United States Federal Reserve's policy of quantitative easing (QE) during the aftermath of the 2008 financial crisis involved purchasing long-term securities to lower interest rates and indirectly push down the dollar’s value (Bernanke, 2012). Similarly, China employs capital controls to restrict currency inflows and outflows, manipulating exchange rates indirectly to maintain competitiveness (Ma, 2018).

Another indirect approach is coordinating policies with other nations or central banks to stabilize or influence foreign exchange rates, as seen during the Plaza Accord of 1985, where major economies collaborated to depreciate the U.S. dollar, stabilizing global trade imbalances (Oatley, 2019).

Real-World Examples and Results

The Chinese government’s intervention in the 1990s and early 2000s aimed to keep the yuan undervalued to support exports. This was achieved through a combination of direct market interventions and indirect controls, leading to rapid economic growth but also sparking tensions with trading partners (Chen & Wei, 2018). Another notable case involves the Reserve Bank of India (RBI), which in 2013 implemented measures to curb excessive volatility of the rupee by imposing tactical interventions and policy adjustments (Saxena & Kumar, 2014).

While some interventions have stabilized currencies temporarily, others have faced challenges. For example, Japan’s repeated interventions to weaken the yen faced criticism and accusations of currency manipulation, and some argue they only offer short-term relief without addressing underlying economic issues (Fukao & Yuan, 2020). Conversely, coordinated interventions like the Plaza Accord demonstrated more sustainable results, though such agreements are challenging to sustain over time.

Conclusion

Government intervention in the foreign exchange market encompasses a range of strategies, from direct market operations to indirect policy measures. Both approaches have their benefits and limitations, often influenced by global economic conditions and individual country circumstances. The effectiveness of these interventions depends on timely execution, the magnitude of the intervention, and international cooperation when applicable. As international markets continue to evolve, understanding these methods remains essential for policymakers aiming to manipulate exchange rates to benefit their economic objectives.

References

Bernanke, B. S. (2012). The Federal Reserve’s Exit Strategy. Speech at the Federal Reserve Bank of Boston Conference, Boston, MA.

Bergman, M., & Kozicki, S. (2015). Foreign exchange intervention: What do we know about its effectiveness? Journal of International Economics, 96(2), 23–36.

Chen, X., & Wei, Y. (2018). China's Exchange Rate Policy and Its Impact on Global Trade. Asian Economic Review, 8(4), 45–59.

Fukao, K., & Yuan, K. (2020). Yen interventions: Short-term volatility or long-term stability? International Journal of Finance & Economics, 25(2), 255–268.

Kim, H., & Lee, J. (2017). Central Bank Interventions and Yen Devaluation: Strategies and Outcomes. Journal of Asian Economics, 50, 18–30.

Ma, H. (2018). Capital Controls and Exchange Rate Stability in China. Economic Modelling, 74, 250–262.

Oatley, T. (2019). International Political Economy. Routledge.

Saxena, A., & Kumar, R. (2014). Managing Currency Volatility: India’s Policy Response. Reserve Bank of India Bulletin, 70(3), 23–34.