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How to stabilize the currency exchange rate

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  • BLINOV, Sergey

Abstract

In 2015, many countries had to deal with the weakening of their currencies. Issues regarding exchange rate management by the Central Banks have again become the focal point of heated debate. For example, the Russian Ruble exchange rate has been fluctuating hugely. The problem now is not so much the Ruble's weakness as instability of its exchange rate, volatility. The management of the Central Bank claims that stabilization of the Ruble exchange rate is not possible though it is the responsibility of the Bank of Russia under the Constitution. As a matter of fact, any country's Central Bank has two methods of stabilizing the exchange rate available to it. Firstly, «adaptive» approach to stabilization may be adopted. In this case, the Central Bank, as it were, «adjusts itself» to the tendencies unfolding in the market, without being active in trying to influence them. Secondly, the Central Bank may use an «active» way of stabilizing the exchange rate. In such a case, it needs to influence the exchange rate without resorting to foreign exchange interventions. Both methods, the adaptive one and the active one, do not require gold or foreign exchange reserves to be spent. It is even the other way round, - the reserves become replenished, while economy gets an impetus for growth.

Suggested Citation

  • BLINOV, Sergey, 2016. "How to stabilize the currency exchange rate," MPRA Paper 70650, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:70650
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    File URL: https://mpra.ub.uni-muenchen.de/70650/1/MPRA_paper_70650.pdf
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    References listed on IDEAS

    as
    1. A. Kudrin., 2006. "Stabilization Fund: Foreign and Russian Experience," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 2.
    2. BLINOV, Sergey, 2014. "Monetary Policy of Quantitative Easing at the Central Bank’s High Interest Rates," MPRA Paper 60765, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Monetary Policy; Central Banking; Business Cycles; International Finance; Foreign Exchange;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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