World's Central Banks Just Can't Quit on Currency Intervention
- Analysts say intervention won’t reverse long-term declines
- Yet moves can succeed by causing markets ‘pain,’ CS says
Photographer: Diego Giudice/Bloomberg
This article is for subscribers only.
History shows that central banks rarely stem a currency’s long-term decline simply by spending foreign-exchange reserves. Yet not stepping in at all can prove far worse.
That’s the argument used by authorities in Brazil, Indonesia and most recently Argentina to explain why it makes sense to shower billions of dollars on what looks like a losing bet. This week alone, Argentina spent about $3 billion, or 5 percent of its reserves, to bolster the peso after it plunged to a record low. Then, wielding another monetary cudgel, it unexpectedly goosed interest rates.