Email of the day 1
Comment of the Day

September 22 2014

Commentary by David Fuller

Email of the day 1

On the authority for US currency interventions:

“David, I had always learned that it is the Dept of the Treasury that has sole authority for currency interventions and NOT the Fed, has this changed?”

David Fuller's view

Thank you for this erudite question.  Here is a portion of the Federal Reserve Bank of New York’s comments on the subject:

Congress has assigned the U.S. Treasury primary responsibility for international financial policy. In practice, though, the Treasury's FX decisions typically are made in consultation with the Federal Reserve System. If the monetary authorities elect to intervene in the FX market, the intervention is conducted by the Federal Reserve Bank of New York. When a decision is made to support the dollars' price against another currency, the foreign exchange trading desk of the New York Fed buys dollars and sells the foreign currency; conversely, to reduce the value of the dollar, it sells dollars and buys the foreign currency. While the Fed's trading staff may operate in the FX market at any time and in any market in the world, the focus of activity usually is the U.S. market.

In recent years, the Federal Reserve and the Treasury have made their interventions more transparent. Thus, the New York Fed often deals directly with many large interbank dealers simultaneously to buy and sell currencies in the spot exchange rate market. The Fed historically has not engaged in forward or other derivative transactions. The Treasury Secretary typically confirms U.S. intervention while the Fed is conducting the operation or shortly thereafter. Often, statements that reflect the official U.S. stance on its exchange rate policy accompany the Treasury's confirmation of intervention activity.

The Federal Reserve Bank of New York announces full details of the U.S. monetary authorities' foreign exchange activities approximately 30 days after the end of every calendar quarter in a report issued to Congress and simultaneously made public entitled "Treasury and Federal Reserve Foreign Exchange Operations".

In other words, my understanding is that it is the US monetary authorities that make the decision, and that they consist of the Treasury and the Fed, while the Federal Reserve Bank of New York actually handles the implementation of FX intervention.

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