Concerted Intervention

[Tobi]

A concerted intervention is like a hybrid between jawboning and operational intervention. Firstly, as the name suggests, concerted intervention requires the concerted action of multiple central banks. Therefore, multiple Central Banks might start jawboning particular currency rates in the market. Then, as a part of concerted action, one of these Central Banks may actually start operational intervention to correct the currency rates whereas the other banks may increase their jawboning activity. Thus the market participants are under threat of action from several Central Banks at one go. If multiple Central Banks were to actually simultaneously intervene, they could drastically alter the exchange rates in the markets within a matter of minutes.

 

[gwolf666]

Concerted intervention is a powerful strategy that involves the coordinated action of several central banks, combining "jawboning" (verbal pressure) and "operational intervention" (direct actions). In this type of intervention, one or more central banks begin to influence exchange rates through public statements (jawboning), which generates market expectations. One of these banks may then take action, directly intervening in the foreign exchange market, while the others continue with their public messages.
This approach can have an immediate and significant impact on exchange rates, as several central banks working together can quickly disrupt markets, potentially within minutes. The threat of simultaneous intervention by several central banks is a very effective mechanism to discourage market participants from taking risky positions against target currencies.
Concerted intervention is used in situations where central banks feel that exchange rate fluctuations are out of control or inconsistent with their economic policies. Although it is a powerful weapon, it can also generate uncertainty, since the market never knows for sure when and how the action will take place.