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by adamtmca
5851 days ago
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Attacks like this work when there is a floor or fixed exchange rate that is artificially high, this creates the opportunity to sell high then, if you can break the floor, buy low to fulfill your obligations to deliver the currency. If there is enough downward pressure the central bank will exhaust it's foreign reserves supporting their currency and have to give up on the floor. The currencies you mentioned all have floating exchange rates, the central banks aren't fighting any sort of battle to support them. The exchange rate isn't really a policy goal of "modern" central banks anymore, they adjust interest rates with a target level of inflation and economic growth, not a target exchange rate. Achieving inflation & growth goals actually precludes the use of monetary policy to maintain a specific exchange rate. Look up the IS/LM model, while not perfect it gives you a good framework to think about monetary policy and macro economics. |
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