On today’s show we are taking a look at what is happening in global foreign exchange markets. It’s no secret that the US dollar has been very strong. This naturally has an impact on countries that have needs for foreign reserves.
The strength of the US dollar makes the cost of imports denominated in US dollars more expensive. It makes exports denominated in US dollars more profitable for local manufacturers.
A few weeks ago we reported on the problems in the European central bank and in the EU in general with sovereign debt starting to suffer a crisis of confidence.
Central banks all over the world are known to intervene and inject liquidity when needed to solve problems for their domestic banks when they run short of reserves, and in some cases foreign reserves.
But when central banks do intervene, like the Federal Reserve has been known to do, it sets off alarms through the global financial markets.
Interventions are an indication of the central bank attempting to fix a problem that has already happened. They’re not being proactive, only reactive.
Those transactions appear on the central bank’s balance sheet for all the world to see.
There is an increasing trend among central banks to perform these interventions in a clandestine manner so as not to cause panic in the financial markets. That means performing the transactions off balance sheet.
Host: Victor Menasce