Should the Fed intervene in the Foreign Exchange Market...

[tommieharris91]

...to strengthen the dollar and lower gas prices?

This question was a poll on CNBC today, so I decided to post it here and see what the econ guys have to say. I have my own opinion and I will post it later.

[Harry Beanbag]

I have no idea.

[47straight]

Absolutely. Nearly every other government plays around for their advantage.

[r5TPsooner]

I think the Fed has done enough for one year.

[Chuck Bao]

Definitely no.

I only know Thailand, but I think the same principles apply.

A central bank should only intervene in the forex market in the short term and that's largely to smooth out fluctuations. The general idea is that extreme currency movements caused by speculation threaten to disrupt the real sector and international trade. Import/export companies can adjust: they just need time.

Central banks around the world play a daily cat and mouse game with currency speculators. The central banks can often achieve their stabilizing role through signaling the market. But, sometimes they are bluffing more than intervening.

If the trade and fund flows are against it, the central bank can't and shouldn't try to fight against the market in the medium to long term. It's suicidal. To see fail, google Bank of England (1992) and Bank of Thailand (1997).

What was the question again? Propping up the dollar to lower oil prices? I don't think so.

Anyway, how can that be achieved? Raising interest rates? Really? Washington is already falling all over itself to try to help those in trouble in the mortgage meltdown.

Dumping gold reserves to buy dollars? Heh!

How about dumping the national reserves of oil? No?

I don't know, then.

[mdklatt]

Raising interest rates?

I vote that we do this. A lot. The way things are going now, pretty soon we're going to be paying interest on money market and savings accounts. :mad: