Business Glossary

action by central bankers to manipulate currency rates in the foreign exchange markets, or maintain an orderly market in currency and securities. Central banks intervene through buying or selling currencies or engaging in currency swaps with other central banks. For example, the Federal Reserve might sell dollars and buy a foreign currency when the exchange value of the dollar is too high, in relation to other currencies; buying dollars and selling another currency in the open market has the opposite effect.

Most central banks intervene in the conduct of monetary policy to one degree or another. The Federal Reserve, acting through the foreign exchange desk of the Federal Reserve Bank of New York, and the U.S. Treasury's exchange stabilization fund participate equally in financing exchange market intervention. Exchange market intervention has no effect on bank reserves kept by U.S. banks at Federal Reserve banks.

See also currency band , swap network , exchange stabilization fund