Bitcoin Forum

What does it mean when a "country intervenes in the currency market"??

New Zealand intervened in the currency market last week and the $NZ dropped, does that mean NZ prints more money to devalue the $NZ?

I'd have to know more details, but New Zealand's central bank might have sold off some of the New Zealand government's debt, if they own any.  They may have just lowered interest rates, (what people are charged to borrow the money they create) which would encourage more borrowing and increase the money supply.

Usually are the interest rates.

I hope NZ doesnt fall in the same tricks as America and Europe, whose respective FIAT currencies are doomed.

Yes. 

It usually means that they purchased massive amounts of foreign currencies in exchange for their own currency (they do this when they want to prevent their own currency from getting too strong). What happened in your example is that NZ likely sold $NZ for likely euros and dollars (the two most heavily traded currencies).

A central bank/country could also intervene to prevent their currency from getting too weak, in this scenario they would sell their foreign currency reserves for their local currency and the result would be that the local currency would increase in value

Would they more likely sell bonds to get the dollars for the currency swap, or would they most likely have $NZ cash on hand (from taxation etc) to buy?

Usually currency mkt interventions entail the central bank either selling down its forex reserves or adding to the pile depending on what kind of px level it is looking to support in the local currency

The government try to adjust economic condition. Some major tools can be considered to use, such the interested rate, bond selling or buying, selling reserve currency and injecting capital to market etc. They are trying to increase the liquidity in the market, maintain the inflation rate at low level or increase import.

That's incorrect. You should say the government, or the central bank, not the country.

At some extent, using the country is correct. The gov or the central bank is assigned the authority to regulate the economy and issue money or fisical policy. So they represent the country.

That is correct. Appreciation of a currency can affect exporters. It would make their exports (which are denominated in say USD) less competitive. So a central bank usually steps in (by selling / buying foreign currency) to maintain a target exchange rate.

It can also be detrimental to an economy when a currency becomes too weak so central banks will sometimes intervene to stop their local currency from falling too much. Although their ability to do this is more limited as they have a limited amount of foreign currency reserves while they essentially have a unlimited amount of foreign currency

Central bank can intervened the currency market by lowering the interest rate or buying up foreign currencies until the desire exchange rate.

they sell drug money and drug car to private action... and then, inject fresh money in the system.
in Europe and USA, they print money ... more simple, fast ... and illimited.

it's a devaluation war, the China did it in 2000, US did it in 2008-12 by printing, japan did it last year, the ecb did it just this summer, now new Zealand, the idea is to make the respective country more cheap to boost exports and increase demand as people buy more local products as foreign products are more expensive , since they printed.

That's why bitcoin is more like gold than currency. It's not going to be devalued. it has inflation but predictable.

This is one war which no country can win. If you print more currency notes and try to devalue your currency, what stops other countries from doing the same?

Bitcoin wins

Nothing. They are doing this via QE. The result is inflation, or less deflatoin

Inflation in all countries (because all countries are doing the same).
Net effect - The purchasing power of people gradually decreases, but exports don't become competitive.

Manipulating the exchange rate of own currency is a common practice for central banks since they have large reserve of foreign currency and can print their own currency limitless

In bitcoin, same practice can be done in large exchanges, so it is important to have many exchanges or even better P2P exchanges all over the place to reduce the effect of one single exchange

Some devs of altcoins will do this in order to keep the value of their altcoin stable, at least for some period of time. Although I believe this to be extremely rare as, IMO the devs of alt coins generally only make their coins to get rich

US manipulated usdx by doing QE, BOJ manipulates jpy by selling joy.. usdjpy below 80 was breaking point look at charts and what they said. SNB said 1.2 eurchf and intervened.. the guys wife bought shitload of EUR and sold CHF prior to the big billion EUR order. Australian bank has been talking down AUD by saying its too high around 1.07.. and it fell.. and im guessing NZ central bank is doing the same... selling NZD because its a race to the bottom for exporting countries.

Central banks do let their currencies fluctuate somewhat (even china allows their currency to move up and down by a small amount every day). The issue comes when a currency moves in one direction too far, threatening the economy if intervention does not occur

each state must have an interest in the money market, they want to maintain their currency exchange rates remain high compared with the currencies of other countries, things like this are like two sides of a coin that is not integral, ie between state intervention on the currency markets, of course eye money superpowers will be more beperan in currency markets ... hopefully superpowers can be fair to other countries, especially developing countries .....  8)

Intervention always ends up hurting more than it helps... it fakes demand similar to QE and all other forms of manipulation... it will come back to bite. If it moved up too far or down too  far.. tough loss your decision to sign plaza accord creating a deflationary spiral for everyone else other than USD.

I think QE is worse then intervention. QE is determined to be long term manipulation and is very difficult and time consuming to unwind. The effects of QE will also not be immediately known.

Intervention on the other hand takes effect immediately and can easily be reversed by intervening in the other direction (or can simply cease intervening)

true... just a form of intervention obviuosly qe is worse or else us would have just done a normal intervention and used profits if any to bail ppl out etc but they needed money right away so.

Currency intervention only works when other countries are not intervening to make their currency weak as well. If that were to happen then the federal reserve would simply be selling euros to the ECB. QE will be necessary when many countries are attempting to intervene in credit markets, although it is much more complicated

Normally, this would mean country who devalue their own currency first benefit the most in the short term. But smart money will leave the country will leave the country who steal from businesses who hold capital.

It means they want a piece(money) of the action.

No intervention is always against usd or eur.. usd and eur... Chf is the only one doing it vs eur because that is the major trade partner.. There is a currency war going on and it is a precursor to a real war(last stage)

This is called passing the deflationary parcel. In the end, a country which doesn't deflate its currency is left holding the parcel. So all countries continue deflating.

Therefore governent wants to mess things up again.

They usually intervene to stop start depreciation/appreciation of the home currency and decrease volatility.

Intervention is usually done "against" the local currency that the central bank is attempting to manipulate. Much of the trading via intervention is done against the dollar and the euro because they are the most heavily traded currencies however the intervention should affect the local currency against all currencies

yup and because those are the ones used across the world.. to drive exports local currency has to devalue however the swap rates allow carry trades against them thus they fight uphill battle.. Its $4 trillion everyday that you must fight... pretty much fruitless unless you want to lose trust in the system which is what is happening with everyone racing tot he bottom..

Not all countries have a "weak local currency" currency policy. Some will let the currency freely float against other currencies regardless of what the market does. The only currencies that will have the problem of being too strong are countries that have net exports as their currency will naturally get stronger as they sell products overseas, bring the profits home and buy the local currency.

yes obviously, problem is alot of the top economies rely on net exports to US/CHINA/EUROPE and thus it really is a big issue and a war going on behind the scenes.

The problem is what happens when other countries manipulate the foreign currency exchange rate. Do they still follow an off-hands policy or do they intervene in the market?

NO its a race to bottom its a currency war...

It is a race no country can win.

The one with the biggest/smartest military will win. For now.

Most will still follow a hands-off policy. When a currency market is intervened in, the impact is almost always temporary as intervention only slows the appreciation of the currency not reverses it over the long term.

well boj has caused usdjpy to bottom out... and eurchf is holding above 1.2 for years now... getting pretty cose but I agree... however with jpy i think they will enter a period of inflation (maybe hyper inflation) because of what they did.. i think instead of jpy being so strong it will become super weak because of the choices they made.. there is no happy between now.. they went to extreme measures to do major interventions and now rate is climbing but it will either fall back down or go through the roof to hurt their economy again.

Japan has been going through a period of deflation for over a decade now. They are in dire need of inflation. The Japanese government has purchased hundreds of billions of dollars (if not trillions of dollars) over the past 10+ years but the yen still appreciated against the dollar from trading at ~120 yen per dollar to less then ~80 yen per dollar

Preach it to the choir. Like I havent seen a chart? They messed up by signing the plaza accord. Now they are backtracking and made mistakes by intervening... that is the essence of the convo not dire need for inflation... they get more inflation than they can handle

btw your number are off they didnt buy hundreds of billions of dollars.. that is a lie. Give me a link.

The amount of intervention are probably understated. In October 2011 the JCB (japan central bank) purchased ~$100 billion of dollars to weaken the yen in one day and purchased ~$20 billion of dollars in early November 2011.

Source: http://www.reuters.com/article/2012/06/01/us-japan-economy-azumi-idUSBRE85003L20120601
I would say that if they spent that much over the course of a few weeks then it would be easy to assume that they purchased a trillion dollars over the course of a decade.

Judging by the fact that there is only $1.3 Trillion USD in circulation I hardly think that is the truth. The intervention that was big $101 billion was the one shot and th ebig one.. but normally around japan open they openly sold a few million on the open market.. but it doesnt add up to much compared to the big intervention.

You need to remember that the majority of US dollars available are not in "hard currency/paper" form but rather is in "digital" form. You also need to remember that trillions of dollars worth of dollars are traded every day throughout the world.

Take the stock market for example, there are close to hundreds of billions of dollars worth of stocks traded on a daily basis however none of it actually has physical cash change hands.

IIRC the amount of dollars traded on forex markets is in the trillions of dollars per day, however I am having trouble finding a source on this

Its $5 trillion a day from derivatives etc.. yea alot of those are IOUs on margin.

I doubt boj works on margin..

It's obvious there are going to be wars to "solve this". When countrie are on economical dead ends, wars are manufactured. This massive debt has no happy ending.