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The other day I realized how much the Fed's attempts to resolve the financial mess resemble sterilized foreign exchange intervention.
Foreign exchange markets are so large that even big exchange intervention efforts look like a drop in the bucket.
In recent years concerted foreign exchange intervention, of the sort undertaken by the G-7 in 1985 and periodically over the subsequent decade, has died out.
But the risk is that such measures might escalate in the longer term, he added, while more foreign exchange intervention is likely.
"There may be no alternative to raising interest rates, allowing greater flexibility in exchange rates and reducing reliance on foreign exchange intervention," the report said.
As the correspondent said, however, the euro can be seen as a de facto foreign exchange intervention to keep the de facto Deutsche mark weak.
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Part 3: international finance policy, capital controls and foreign exchange interventions.
Many experts think the foreign exchange interventions of the last two years have maintained the dollar's value at an unnaturally high level.
The welfare effects of shocks to monetary policy, sterilized and nonsterilized foreign exchange interventions are examined and compared.
Botched stock exchange interventions and a sudden currency devaluation in August have rattled confidence in the country's leadership, whose legitimacy rests on maintaining an aura of economic infallibility.
Despite the central bank's declarations that it has reduced its foreign exchange interventions, currency dealers say they still spot aggressive buying or selling of dollars by the authorities.
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