How to devalue exchange rates, without building up reserves: Strategic theory for central banking

Kaushik Basu

Economics Letters, 2012, vol. 117, issue 3, 758-761

Abstract: Central banks, wanting to devalue their currency, often intervene in the foreign exchange market by buying up foreign currency. Such interventions even if effective lead to a build up of foreign exchange reserves. This paper argues that the coupling of devaluation and reserve build up can be avoided if the central bank intervention takes the form of a ‘schedule’, that is, commitment to buying and selling conditional on the exchange rate.

Keywords: Exchange rate; Central bank intervention; Currency dealers; Oligopoly (search for similar items in EconPapers)
JEL-codes: D43 F31 G20 L31 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:117:y:2012:i:3:p:758-761

DOI: 10.1016/j.econlet.2011.12.069

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