Foreign exchange market intervention in EMEs: what has changed?

Since the Great Financial Crisis, emerging market economies have been more active in FX markets. As rising dollar debt and increased exposure to global financing flows have affected the demand and supply of foreign currency, financial stability has become an increasingly important motive for interventions. Adjustments in intervention tactics and instruments are consistent with a greater importance of financial stability considerations. Timely interventions can be effective in improving FX market liquidity, and there are credibility gains from holding foreign reserve buffers in countries with low credit ratings. Since the carrying costs of holding reserves have increased, countries with higher credit ratings may have incentives to reduce the size of reserve buffers.