How Powerful Is Unannounced, Sterilized Foreign Exchange Intervention?

• Published date: 01 August 2023
• Author: ALAIN NAEF,JACOB P. WEBER
• Date: 01 August 2023
• DOI: http://doi.org/10.1111/jmcb.12985

DOI: 10.1111/jmcb.12985

ALAIN NAEF

JACOB P. WEBER

How Powerful Is Unannounced, Sterilized Foreign

Exchange Intervention?

Though most central banks actively intervene on the foreign exchange mar-

ket, the literature offers mixed evidence on their effectiveness: particu-

larly for unannounced interventions. Weuse new, declassied data from the

archives of the Bank of England and the institutional features of the Bretton

Woods Era to estimate the effects of interventionon the exchange rate. We

nd that a purchase of pounds equivalent to 1% of the money supply causes

a statistically signicant, 4–5 basis point appreciation in the pound.

JEL codes: F3, N2

Keywords: monetary policy, foreign exchange markets, Bretton Woods

system

M     economies inter-

vene in foreign exchange markets to manage volatility and unwanted exchange rate

movements. Many central banks both sterilize their interventions and conduct them

secretly, meaning without any announcement beforehand or acknowledgement after

the fact.1Using recently collected data on the Bank of England’s daily operations

during the Bretton Woods Era, we conduct a new analysis of such unannounced,

never-acknowledged sterilized intervention and nd statistically signicant effects

on the level of the exchange rate.

Wethank Bill Allen, Michael Bordo, Barry Eichengreen, Galina Hale, Walter Jansson, Gaurav Manek,

Peter McCrory,Todd Messer, Emi Nakamura, Christina Romer, David Romer,Jón Steinsson, and seminar

participants in the Berkeley Economic History Lunch and Banque de France seminar for valuable com-

ments and discussion. We are especially grateful to Tobias Heiland for agreeing to discuss this paper. The

views expressed in this paper do not represent the opinion of the Banque de France or the Eurosystem.

A N is with the Banque de France (Email: alain.naef@banque-france.fr). J P. W is

with the Department of Economics, UC Berkeley (Email: jacob_weber@berkeley.edu).

Received February 23, 2021; and accepted in revised form June 21, 2022.

1. From a recent survey of 22 “Emerging Market Economy” central banks, 17 reported “Never” or

“Rarely” preannouncing their intervention; when asked if they published data after the fact, sevenreported

never publishing data at all and only nine reported publishing data at a greater-than-monthly frequency

(Mohanty and Berger 2013); separately, most reported routinely sterilizing their interventions.

Journal of Money, Credit and Banking, Vol. 55, No. 5 (August 2023)

© 2022 The Ohio State University.