Part I
Author:
Mr. Marcos d Chamon
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Language:
English
Keywords:
BOOK; central bank; intervention; exchange rate; foreign exchange intervention; spot market; intervention policy; dollar sale; foreign exchange; Exchange rates; Foreign exchange intervention; Currency markets; International reserves; Global; Central America
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Abstract

Foreign exchange intervention is widely used as a policy tool, particularly in emerging markets, but many facets of this tool remain limited, especially in the context of flexible exchange rate regimes. The Latin American experience can be informative because some of its largest countries adopted floating exchange rate regimes and inflation targeting while continuing to intervene in foreign exchange markets. This edited volume reviews detailed accounts from several Latin American countries’ central banks, and it provides insight into how and with what aim many interventions were decided and implemented. This book documents the effectiveness of intervention and pays special attention to the role of foreign exchange intervention policy within inflation-targeting monetary frameworks. The main lesson from Latin America’s foreign exchange interventions, in the context of inflation targeting, is that the region has had a considerable degree of success. Transparency and a clear communication policy have been key. For economies that are not highly dollarized, rules-based intervention helped contain financial instability and build international reserves while preserving inflation targets. The Latin American experience can help other countries in the design and implementation of their policies.

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Cover Foreign Exchange Intervention in Inflation Targeters in Latin America
Foreign Exchange Intervention in Inflation Targeters in Latin America
Author:
Mr. Marcos d Chamon
,
Mr. David J Hofman
,
Mr. Nicolas E Magud
, and
Alejandro M. Werner
ISBN:
9781484375686
Publication Date:
28 Feb 2019
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781484375686.071
Pages:
320
  • <sup><xref ref-type="fig" rid="Rch02fig01">Figure 2.1</xref>.</sup>
    View in gallery
    Figure 2.1.

    International Reserves Relative to Broad Money and IMF Adequacy of Reserves Accumulation Metric, 1995–2017

  • <sup><xref ref-type="fig" rid="Rch02fig02">Figure 2.2</xref>.</sup>
    View in gallery
    Figure 2.2.

    International Reserves to Short-Term Debt, LA5 Countries, 2000–16

    (Percent)

  • <sup><xref ref-type="fig" rid="Rch03fig01">Figure 3.1</xref>.</sup>
    View in gallery
    Figure 3.1.

    Foreign Exchange Intervention in Latin American Countries, by Instrument and Exchange Rate, 2006–17

    (Billions of US dollars, left scale)

  • <sup><xref ref-type="fig" rid="Rch03fig02">Figure 3.2</xref>.</sup>
    View in gallery
    Figure 3.2.

    Ratio of Daily Turnover in Derivatives Market to Spot Market

    (Net-net basis, as of April 2013)

  • <sup><xref ref-type="fig" rid="Rch04fig01">Figure 4.1</xref>.</sup>
    View in gallery
    Figure 4.1.

    Latin America: Nominal Exchange Rate Indices, 2005–18

    (2008 = 100)

  • <sup><xref ref-type="fig" rid="Rch05fig01">Figure 5.1</xref>.</sup>
    View in gallery
    Figure 5.1.

    One-Year Cross-Country Basis

    (Basis points)

  • <sup><xref ref-type="fig" rid="Rch05fig02">Figure 5.2</xref>.</sup>
    View in gallery
    Figure 5.2.

    Balance of Payments and Forward-Market Equilibrium Scenarios

  • <sup><xref ref-type="fig" rid="Rch05fig03">Figure 5.3</xref>.</sup>
    View in gallery
    Figure 5.3.

    Brazil: Exchange Rate, Spot Dollar Sales, Swap Sales, and Forward Dollar Sales, by Quarter, 2012–17

  • <sup><xref ref-type="fig" rid="Rch05fig04">Figure 5.4</xref>.</sup>
    View in gallery
    Figure 5.4.

    Mexico: Exchange Rate, Basis Spread, Spot Dollar Sales, and Forward Dollar Sales, by Quarter, 2012–17

  • <sup><xref ref-type="fig" rid="Rch06fig01">Figure 6.1</xref>.</sup>
    View in gallery
    Figure 6.1.

    Foreign Exchange Intervention in Latin American Countries, by Instrument and Exchange Rate

    (Billions of US dollars, left scale)

  • <sup><xref ref-type="fig" rid="Rch06fig02">Figure 6.2</xref>.</sup>
    View in gallery
    Figure 6.2.

    Annual Deviation of Inflation Expectations from Target, 2010–17

    (Percentage points)

  • <sup><xref ref-type="fig" rid="Rch06bx01fig01">Figure 6.1.1</xref>.</sup>
    View in gallery
    Figure 6.1.1.

    Deposit Dollarization, 2001–17

    (Ratio of foreign currency deposits to total bank deposits, percent)

  • <sup><xref ref-type="fig" rid="Rch06bx01fig02">Figure 6.1.2</xref>.</sup>
    View in gallery
    Figure 6.1.2.

    Loan Dollarization, 2001–17

    (Ratio of foreign currency deposits to total loans, percent)

Figure 2.1.

International Reserves Relative to Broad Money and IMF Adequacy of Reserves Accumulation Metric, 1995–2017
Figure 2.2.

International Reserves to Short-Term Debt, LA5 Countries, 2000–16

(Percent)
Figure 3.1.

Foreign Exchange Intervention in Latin American Countries, by Instrument and Exchange Rate, 2006–17

(Billions of US dollars, left scale)
Figure 3.2.

Ratio of Daily Turnover in Derivatives Market to Spot Market

(Net-net basis, as of April 2013)
Figure 4.1.

Latin America: Nominal Exchange Rate Indices, 2005–18

(2008 = 100)
Figure 5.1.

One-Year Cross-Country Basis

(Basis points)
Figure 5.2.

Balance of Payments and Forward-Market Equilibrium Scenarios
Figure 5.3.

Brazil: Exchange Rate, Spot Dollar Sales, Swap Sales, and Forward Dollar Sales, by Quarter, 2012–17
Figure 5.4.

Mexico: Exchange Rate, Basis Spread, Spot Dollar Sales, and Forward Dollar Sales, by Quarter, 2012–17
Figure 6.1.

Foreign Exchange Intervention in Latin American Countries, by Instrument and Exchange Rate

(Billions of US dollars, left scale)
Figure 6.2.

Annual Deviation of Inflation Expectations from Target, 2010–17

(Percentage points)
Figure 6.1.1.

Deposit Dollarization, 2001–17

(Ratio of foreign currency deposits to total bank deposits, percent)
Figure 6.1.2.

Loan Dollarization, 2001–17

(Ratio of foreign currency deposits to total loans, percent)