The Role of Central Banks in Currency Fluctuations

[Suba]

Stable currency fluctuations are a sign of a healthy economy. No country in the world can meet all its needs alone, so it must cooperate and transact with other countries. Meanwhile, export and import activities are highly dependent on a country's exchange rate, even if they mostly use USD, which means they must convert local currency to USD.

A drastic decline in a country's currency exchange rate in the short term only impacts exporters, importers, or large traders. However, if left unchecked over the long term, it can have a significant negative impact on the entire population.

To control currency fluctuations, the central bank employs various monetary policy instruments, such as direct intervention in the foreign exchange market, setting benchmark interest rates, conducting open market operations, and so on. Unfortunately, in many developing countries, central banks often lack sufficient money supply, making them unable to prevent large investors from speculating, which further depresses the currency. Currency speculators can then buy back currency at a lower price, thereby generating substantial profits. such as the case of George Soros which left the Bank of England in a state of confusion.

 

[King Belieal]

The central banks through its monetary policies help to manage the currency of a country and determine its value in relation with other factors.

 

[Nomad]

I do not think central banks can control the fluctuations of currency, if it could there wouldn't be recession.

 

[kit_hung]

You have explained it very well! A stable currency movement indicates a stable economy. Today’s world is based on international trade, and exchange rates directly affect the import and export of goods.

If a currency suddenly depreciates, big businessmen are the first to suffer. But if the situation persists, all citizens suffer through rising prices and a decrease in the value of income. This is where central banks try to control the situation through monetary policy.

The challenge is that many banks in developing countries lack the financial strength to deal with currency speculators. This requires strong policies, good governance, and international cooperation to protect domestic economies.

 

[Trush Jodie]

It is the role of the central bank to defend the value of the currency. They make monetary policies that would push the value of the local currency up when it is losing value.

 

[Stardom22]

Central banks are here to regulate banks, money market funds, capital markets among other financial institutions in place.