IN real economy money as a commodity has its own price - exchange rate. The exchange rate depends on traditional pricing elements: supply and demand, which, in turn, are influenced by many factors.
The variety of everything that affects exchange rates leads to the fact that the real value of a currency (how much goods and services can be bought for it) and its exchange rate (what is the balance of supply and demand for the currency on the market) can vary significantly.
Currency quotes are influenced by economic and political factors. Main factors influencing the exchange rate- these are decisions of the central banks of states and international organizations in the field of monetary policy regarding the currency they issue.
Despite the fact that exchange rate management is not usually the task of central banks, any change in the amount of money in circulation - this is a constantly used tool of influence on the part of central banks - leads to changes in the exchange rate.
Example: at the end of October 2014, the Bank of Japan decided to expand the stimulus program national economy. For the market, this was a signal of an imminent increase money supply yen, which led to a weakening of the Japanese currency by 10% against the US dollar.
Changes in monetary policy are closely related to the situation in the country's economy. Significant economic news can lead to these changes, for example, strong macroeconomic reports increase the likelihood of tightening monetary policy, and also help to increase the attractiveness of investment in the country. Both the first and second entail an increase in the exchange rate of its currency. When macroeconomic data worsens, we have the opposite situation. This is especially true for the United States - attention to the Federal Reserve, which manages the issue of the dollar, along with a huge amount of publicly available macroeconomic data, is one of the main factors influencing the exchange rate of the American currency.
Example: On October 15, 2014, data on retail sales in the United States was published. The data turned out to be weaker than average forecasts: the figure fell by 0.3%, although most forecasts predicted a decline of 0.1%. This caused a strong decline in the dollar against major currencies, as expectations regarding the tightening of monetary policy by the US Federal Reserve decreased.
Among other instruments of central banks, one can highlight foreign exchange interventions - large-scale operations of buying or selling currency on the international market in order to influence the balance of supply and demand and adjust the exchange rate in the desired direction.
What affects the exchange rate of the most popular currencies - the euro and the dollar?
Main, what does the exchange rate depend on on the international market? the two most popular currencies - the dollar and the euro - this, of course, is the policy of central banks and economic indicators USA and European Union. At the same time, a huge number of countries are guided by the exchange rate of the US dollar, as well as the euro, as the leading reserve currencies of the world, holding part of their reserves in their currencies - therefore, the very status of these currencies does not provide for sharp fluctuations or rapid rises or falls.
With other currencies, qualitatively different situations are possible, when the currency is influenced by decisions and statements external countries. These are the so-called commodity currencies that depend on exports natural resources by their countries. Classic example is oil: one of the factors on which the ruble exchange rate depends is the world price for this resource. A significant part of the world's oil supply (about 50%) is controlled by the international cartel of oil exporting countries - OPEC, and its decisions to increase or decrease production fluctuates the price of a barrel, thereby strengthening or weakening Russian ruble, Iranian rial, Venezuelan bolivar and other “oil” currencies.
Other factors include political crises and elections - the uncertainty associated with their course and outcome usually has a negative impact on the exchange rate. Geopolitical confrontations affect exchange rates through macroeconomics - as soon as international conflicts lead to a decrease in development dynamics, the currencies of all “participants” begin to sink.
Finally, exchange rates may fluctuate due to currency speculation. Moreover, such an effect is usually short-term and quickly leveled out, and also requires a huge volume of transactions in order to significantly “move” the exchange rate.
With the collapse of the USSR, the CIS countries embarked on a thorny path of development market relations. Their basis is large-scale trade relations with other countries of the world, requiring not only the mutual exchange of goods, but also the exchange of internal currencies of different countries.
Distortions in external trade balance states lead to changes in the exchange rate of the domestic currency in relation to external ones - inflation or deflation.
To combat these phenomena central bank(The Central Bank) of the state has several mechanisms, one of which is foreign exchange interventions.
Currency intervention- the process of rapid purchase or sale by the Central Bank of significant volumes of foreign currency, directly affecting the size of the state’s gold and foreign exchange reserves.
The speed of the operation is achieved through the massive purchase of all counter offers on interbank currency exchanges or by submitting an application from the Central Bank for a transaction at a price that is obviously favorable for private banks.
Types of interventions
Although all types of foreign exchange interventions pursue one of two goals - a sharp increase or decrease in the exchange rate national currency, they differ from each other in efficiency and method of implementation.
The following types can be distinguished:
- Verbal— a statement by the Central Bank about its desire to soon carry out the purchase/sale of currencies. The news makes the purchase of a promising currency profitable in the eyes of currency traders, and they achieve the desired result without the participation of the Central Bank. This effect can either be strengthened by real actions of the Central Bank, or left to chance, leaving gullible traders at a loss.
- Real hidden— the regulator secretly obliges the largest commercial banks countries buy or sell currency at a price that is obviously unfavorable for them, supplying them with currency for exchange from the country’s gold and foreign exchange reserves or from the “printing press.” This is the most common and widespread type used to maintain a currency corridor in countries with tight exchange rate policy. Details of such interventions are covered during the reports of the head of the Central Bank to the government. Such interventions pose the greatest problem for inexperienced traders who cannot predict their implementation and the direction of the currency.
- Real straight one way- The Central Bank is conducting a major currency transaction on its own behalf, announcing this in the media, indicating the amount and direction of movement of currencies. An intervention of this kind has immediate effectiveness in the form of a one-time jump in the exchange rate by hundreds of points, but long-term effectiveness with an unbalanced trade balance is low.
- Real direct multilateral- 2 or more central banks states unite to achieve the desired indicators. This approach is most effective if the economies of states differ in size by an order of magnitude or more. The larger state (usually the United States) is able to effectively help regulate the exchange rates of all the smaller ones, relying on the fact that none of the smaller states will be able to greatly influence its domestic economy.
Goals of the intervention
- Reducing the volatility of the currency exchange rate and fixing the exchange rate in the “currency corridor” increases confidence in the currency and reduces risks when conducting foreign exchange transactions.
- Changing the current exchange rate compensates for exchange rate distortions caused by economic reasons.
- Countering uncontrolled inflation prevents the spread of panic among the population.
Reasons for the intervention
There are 3 main reasons that may force the Central Bank of a country to conduct currency interventions:
- Force majeure circumstances that dramatically change the exchange rate - natural disasters, bankruptcy of large banks and corporations, stock market crash, and so on. In such cases, a one-time direct intervention is usually carried out foreign currency or gold in an amount sufficient to cover losses and restore the exchange rate.
- The need to curb inflation and speculation with periodic deficits in the state's trade balance. In such cases, verbal and covert interventions are most often used. The strength of the domestic currency exchange rate, achieved in this way, greatly depends on the size of the state's gold and foreign currency reserves.
- The need to reduce the exchange rate of the national currency with a constant trade balance surplus. Hidden interventions are mainly used to avoid public dissatisfaction. For this reason, intervention is popularly called “turn on printing press”, although this does not always happen this way.
Consequences of the intervention
The impact of a single intervention on long-term exchange rates depends on the volume of the transaction, the size of the trade imbalance, and the general direction of the market.
If a country has a negative trade balance and a low degree of global confidence in the national currency, like all countries former USSR, then to maintain the exchange rate it will be necessary to carry out timely interventions in an amount that fully compensates for the lack of balance.
If you miss the moment, currency traders They will not fail to take advantage of panic among the population, which will lead to the need to buy back the national currency not only from foreign partners, but also from their own population.
On the other hand, countries with a positive trade balance regularly purchase foreign currency to reduce the exchange rate of the national currency, and interventions in large one-time volumes are carried out extremely rarely.
An example is Japan, whose trade has suffered for decades from an overvalued yen.
In 2011, the state's Central Bank printed 5 trillion yen and replenished the gold and foreign exchange reserves by $75 billion. Such a truly huge intervention was able to lower the yen exchange rate by only 4%.
Mechanism for increasing the exchange rate of the national currency
Changes in the exchange rate of the national currency, like changes in the price of any other product, are determined by the relationship between supply and demand. The massive sale of foreign currency occurring during the intervention, combined with the withdrawal of the national currency from circulation, leads to a sharp increase in demand for the latter and to an increase in its exchange rate.
Since by foreign currency we most often mean the dollar or euro, which are based on multi-trillion-dollar economies and gold reserves of countries around the world, sharp fluctuations exchange rates of national currencies as a result of interventions usually do not lead to strong fluctuations in the exchange rates of major currencies relative to each other.
It is especially worth mentioning the mechanism for increasing the exchange rate of the domestic currency in a state with a positive trade balance, the cause of which is of two types:
- Production potential - for example, China. An actively growing economy and hundreds of billions of dollars pouring into gold and foreign exchange reserves annually create domestic market China's ever-growing demand for the yuan, which the Chinese government regularly satisfies by turning on the printing press and preventing the exchange rate from rising uncontrollably.
- Strong currency - for example, Switzerland. Popularity Swiss franc as a reserve currency it far exceeds the size of the economy of this small state. This led to a constant excess of demand for the franc over supply, until the Swiss government adopted a economic reasons the decision to carry out an open-ended permanent intervention of the franc to maintain a stable exchange rate against the euro.
Specifics of application of interventions
Two features of interventions can be distinguished, on which their effectiveness and duration of consequences greatly depend:
- sterilization - ensuring the issue of currency with government debt obligations, leveling the direct impact on the domestic foreign exchange market. Unsterilized interventions are more effective over a long period of time because they directly affect both the domestic and foreign foreign exchange markets;
- direction of movement - the most effective intervention is “on the market”, allowing the rate to change sharply to the required parameters and maintain them for a long time. Interventions against market trends have only a short-term effect.
Interventions in Russia
The Russian Federation has an extensive history of foreign exchange interventions, which can be called effective with varying degrees of success. Low confidence in the Russian ruble in the world and among the population, the raw materials orientation of the state’s economy are the main reasons for the problems of the Central Bank of the Russian Federation.
The reason for this was the initial misunderstanding in the early 90s by the highest Russian officials principles market formation course, as well as low economic literacy of the population. Politicians, in order to maintain the course and please the electorate, carried out large currency interventions, reducing the already small gold and foreign currency reserves.
To replenish gold and foreign exchange reserves in Russia, it is still mainly used not for the purchase of foreign currency in rubles, but for direct injections of foreign currency from the sale of resources at the state level. This leads to a strong link between the ruble exchange rate and prices for the main export raw materials, oil and gas.
For quite a long time, from 2005 to 2013, the price of these types of fuel made it possible to maintain a stable ruble-dollar exchange rate through regular interventions and accumulate gold and foreign currency reserves.
Unfortunately, based on the results of 2014-2015, it can be argued that despite Russian economists mastering a more correct, step-by-step approach to devaluation, the population as a whole is still economically illiterate, and politicians are still trying to maintain popularity by wasting gold and foreign exchange reserves on interventions against trends market.
Is it possible to predict an intervention?
An ordinary trader is unlikely to be able to keep track of the many factors that may force the Central Bank to conduct hidden intervention. Direct ones are usually announced in advance, just follow economic news. Most often this turns out to be a “duck”, that is, a verbal form of intervention, but even this produces the exchange rate fluctuation that the trader needs.
Some countries, such as Japan and Switzerland, try to keep the exchange rate of their currencies against the dollar in a certain corridor; when the currency reaches the upper limit of this corridor, it is possible to predict with a high probability hidden intervention and a fall in the exchange rate to the lower limit.
Majority developed countries with a negative trade balance, such as the USA and Great Britain, do not allow traders to make money on their currency by intervening only in the direction of devaluation, that is, printing the missing money and replenishing the imbalance with it.
In a country like Russia, it is almost impossible to predict hidden intervention; direct interventions are usually used to combat market trends.
How long does the process take?
The intervention itself takes place within 2-3 hours, the duration of the consequences depends on many factors. The inertial movement of the exchange rate usually persists for some time, then a rollback to new positions begins and the fluctuations gradually calm down.
How to use the intervention?
Some tips for novice traders:
- To take advantage of direct intervention, you need to catch the wave of exchange rate appreciation as quickly as possible, hoping at least for a verbal effect;
- If a verbal intervention is not accompanied by a real one, you need to have time to get rid of the currency before incurring losses;
- If there has been a real injection of currency, you should carefully monitor changes in exchange rates and sell the increased currency at the slightest sign of leveling off;
- It is impossible to prepare for a hidden intervention, but you can take advantage of exchange rate fluctuations immediately after it takes place.
Devaluation - depreciation of the national currency against foreign currencies (or international currency units, previously against gold). Its objective basis is the overestimation of the official exchange rate compared to the market one. Revaluation - an increase in the exchange rate of the national currency against foreign currencies (or international currency units, previously against gold).
Before the abolition of gold parities in 1976-1978. devaluation and revaluation were accompanied by changes in the gold content and exchange rate. In conditions of floating exchange rates, they occur at foreign exchange market and affect the official quotation of the national currency exchange rate.
Let's look at the example of devaluation. At the beginning of 2010, the euro exchange rate decreased from 1.5 to 1.2 dollars. To determine the percentage of currency devaluation, it is necessary to take this currency as a unit, divide the exchange rate difference by the original rate and multiply by 100.
If we denote the old rate Ks and the new rate Km, then the formula for calculating the percentage of devaluation (D) is presented as follows:
IN in this example the size of the devaluation of the euro against the dollar was
To determine the percentage increase in the dollar exchange rate (revaluation), it is necessary to take this currency as a unit, divide exchange rate difference to the original rate and multiply by 100 according to the form. 1C
Let's determine the rate of 1 dollar to euro:
1 euro = 1.5 dollars.g = 1 dollar.
Consequently, before the depreciation of the euro, 1 dollar was equal to 0.66 euros, after the devaluation - 0.83 euros (1/1.2). The size of the forced increase in the dollar exchange rate (revaluation - R) to the euro is equal to:
Let's consider how the devaluation of a currency (for example, the euro) affects the issuing country and the country that uses it in international payments (Fig. 5.4).
The results of currency depreciation and appreciation depend on specific conditions and are manifested through certain time(lags), unless other factors counteract it.
For example, the devaluation of the dollar in 1971 contributed to the activation of the US balance of payments only in 1973, when its exchange rate was again depreciated.
The direction of exchange rate policy changes periodically. So, US politics. aimed at increasing the dollar exchange rate (for example, by 80% in 1980-1984), brought them benefits in the form of an influx foreign investment and cheap goods, which stimulated a depreciation of the dollar in order to encourage exports and economic growth. During the global financial and economic crisis, the United States sought to reduce the exchange rate of the dollar by putting pressure on other countries (for example, China), seeking to increase the exchange rate of the yuan.
Devaluation contributes to higher prices and lower standard of living workers, and revaluation leads to an increase in unemployment in industries that cannot withstand competition with cheap foreign goods. Competition between countries is intensifying.
In monetary policy, two opposing trends are intertwined: coordination of actions, the search for joint ways to solve currency problems, disagreements due to the desire of each
Rice. 5.4.
countries to gain advantages at the expense of others, to impose their will on them. In view of this, currency wars between countries periodically break out over sales markets, areas for investing capital, and sources of raw materials.
International experts - representatives of the most competitive developed and developing countries- develop recommendations on the introduction by all states of a free-floating exchange rate regime for the national currency in order to reduce the trade surplus of developing countries and countries with emerging markets and increase their imports. However, the instability inherent in freely floating exchange rates does not stimulate global trade, undermining the confidence of market participants.
An important area of monetary policy is the management of the country's international reserves.
CURRENCY RATE INCREASE
CURRENCY RATE INCREASE
(appreciation, currency) An increase in the price of a given country's currency, expressed in foreign currency. As a result of the growth of the national currency, foreign goods become relatively cheaper than those produced within the country, which contributes to an increase in imports, and locally produced goods abroad, on the contrary, become more expensive, which leads to a decrease in exports. Thus, an increase in the exchange rate generally has an adverse effect on the balance of trade of a country. At the same time, lower prices for imported products help reduce inflation in the country.
Economy. Dictionary. - M.: "INFRA-M", Publishing House "Ves Mir". J. Black. General edition: Doctor of Economics Osadchaya I.M.. 2000 .
Economic dictionary. 2000 .
See what “INCREASE IN THE CURRENCY RATE” is in other dictionaries:
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AND; and. [from lat. re again and valere cost] Finance. An official increase in the gold content of a country's currency or an actual increase in its exchange rate. R. Japanese yen. * * * revaluation (from re... and lat. valeo meaning, I stand),... ... encyclopedic Dictionary
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Changes in the national currency exchange rate have different effects on different market participants. The negative reaction of Russian consumers to the rise in prices of imported goods, which, among other reasons, is affected by the depreciation of the ruble, which was especially clearly manifested in the post-default devaluation of the ruble, is absolutely fair. This situation is aggravated by inflationary processes and a shortage of nationally produced goods. But even in a saturated market in developed countries, a depreciation of the national currency leads to an increase in the price of imported goods, makes them less accessible to the buyer, reduces the possibility of choice and ultimately reduces the level of consumption of the population. Accordingly, if the situation develops in the opposite way, i.e. The exchange rate of the national currency rises, which benefits consumers.
Exchange rate fluctuations have an ambiguous impact on producers. The negative consequences of currency appreciation are experienced primarily by export-oriented industries. An increase in the value of the national currency increases the price of exported goods, as a result, sales volumes decrease, which often leads to a reduction in production.
However, in a situation with a rising national currency, there are producers who benefit from it. These are those whose production is based on imported raw materials, materials, and equipment. Reducing the cost of imported components reduces production costs and strengthens the position of these enterprises in the market. In the event of a depreciation of the currency, the circumstances develop for them in the opposite way: there is an increase in costs, as a result, a drop in profitability or unprofitability of production, then a reduction in its volumes or closure. There are industries that react poorly to exchange rate fluctuations. These are those whose production is limited to the domestic market and is not associated with either export or import.
An appreciation of the currency makes the situation worse for exporters and better for importers, i.e. both factors, from the point of view of aggregate demand, act in the same direction - towards its decrease. Currency depreciation, by increasing exports and decreasing imports, can support growth aggregate demand, i.e. the volume of national production that can be acquired, other things being equal. And again, an example is post-default processes in Russia. The devaluation of the ruble “protected” the domestic market from imports, i.e. led to increased “price competitiveness” of national producers. Further, the growth of aggregate demand, which ensured economic growth for the duration of the devaluation effect.
As for the impact of the exchange rate on aggregate supply, i.e. the volume of production that can be produced, then the situation here is the opposite. A depreciation in the exchange rate causes an increase in prices for imported raw materials, supplies, and equipment. This causes an increase in production costs, and the result may be a reduction in production volumes. A sharp drop in the exchange rate can lead the economy into a state of so-called “supply shock”, i.e. lead to a reduction in real output while simultaneously increasing prices. In a normal economic situation, the negative impact of a currency depreciation on aggregate supply is offset by an increase in net exports. However, if, for certain reasons, export growth does not occur, the impact of a supply shock on the economic system, due to a sharp depreciation of the exchange rate, can be significant.
Positive consequences of reducing the nominal value of a currency:
Increasing the competitiveness of domestic producers due to a sharp increase in the cost of imported goods;
Buyers give preference to domestic production, which will lead to the growth and development of the state’s economy in the future. Negative consequences of currency decline:
A decrease in export volumes due to an increase in the prices of goods, works and services sold, which encourages producers to reorient themselves to the domestic market of the state;
Rising unemployment rate, falling purchasing power of the population;
A sharp increase in the cost of production due to the use of imported materials and equipment entails an increase in the cost of products;
Depreciation of deposits and deposits due to the fact that the population, in an unstable economic environment, seeks to sell the national currency;
Height interest rates on loans, along with a sharp decline in the volume of household deposits, is due to a crisis in the banking sector.
In conditions of depreciation and fall of the national currency, it is recommended to invest available funds in real estate. Regular expenses and bank lending need to be reduced.
Manufacturers should reduce production and pay attention to the development of sales within the country, try to replace imported materials with domestically produced components.
