Foreign Exchange Market

NBER WORKING PAPER SERIES

EPILOGUE: FOREIGN-EXCHANGE-MARKET OPERATIONS IN THE TWENTY-FIRST CENTURY Michael D. Bordo Owen Humpage Anna J. Schwartz Working Paper 17984 http://www.nber.org/papers/w17984 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 April 2012

Michael Bordo is a Visiting Scholar at the Federal Reserve Bank of Cleveland and this paper is part of an ongoing research project there. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research, the Federal Reserve Bank of Cleveland, or the Board of Governors of the Federal Reserve System. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2012 by Michael D. Bordo, Owen Humpage, and Anna J. Schwartz. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.

Epilogue: Foreign-Exchange-Market Operations in the Twenty-First Century Michael D. Bordo, Owen Humpage, and Anna J. Schwartz NBER Working Paper No. 17984 April 2012 JEL No. F31,F33,N2 ABSTRACT Foreign-exchange operations did not end after the United States stopped its activist approach to intervention. Japan persisted in such operations, but avoided overt conflict with its monetary policy. With the on-set of the Great Recession, Switzerland has transacted in foreign exchange both for monetary and exchange-rate purposes, and key central banks have used swap facilities to extended their lender-of-last-resort functions. Developing and emerging market economies continue to intervene, but their actions may hamper the development of their own foreign-exchange markets. China’s undervalued exchange rate is producing inflation and real appreciation, despite...