Definition – What does Currency Intervention mean?
A currency intervention is a situation where a nation’s central bank attempts to control the price of its currency by buying or selling currency in the forex market. This buying and selling is usually done in large orders, comprised of yards, in order to signal to the market that they are willing to commit a lot of capital to moving the market.
ForexTerms explains Currency Intervention
Currency interventions have a spotty record of success, as even central banks cannot overrule market forces for long. In the simplest terms, a country can go about manipulating the markets by changing the balance of supply and demand. A country looking to prop up their currency may sell foreign reserves and buy domestic currency. A country looking to push down the value of its currency will use reserves of domestic currency to buy up foreign currencies. However, these measures often only hold up for as long as the central bank is willing to commit money.
Some countries are more interventionist than others. The Bank of Japan, for example, has a complex method of making currency interventions including a soft intervention stage where it calls institutions for quotes on the strength of the yen against other currencies and publicly muses about selling yen.
