Central bank dollar intervention

U.S., Europe, Japan Devised Plan to Prop Up Dollar, Nikkei Says (August 27 – Bloomberg)


Aug. 27 (Bloomberg) -- Finance officials from the U.S., Japan and Europe in mid-March drew up plans to strengthen the U.S. dollar following troubles at Bear Stearns Cos., Nikkei English News reported, citing unnamed sources.

The intervention designed by the U.S. Treasury Department, Japan's Finance Ministry and the European Central Bank called for the central banks to purchase dollars and sell euros and yen, with Japan providing the yen needed for the currency swap if the greenback's value dropped significantly, the news service said.

The three groups, which considered making an emergency statement through the Group of Seven industrial nations, did not stipulate a specific exchange rate for the potential intervention, nor did they detail the amount of money to be used, Nikkei said.

ECB spokeswoman Eszter Miltenyi and Treasury spokeswoman Brookly McLaughlin declined to comment on the report.

So, assuming this rumor is true, what we have here is a case where the world's central bankers, the same ones that looked the other way while the most obvious and largest of all crises developed, have decided that they are the right ones to set a price on the dollar.

It bears noting that this crisis has its roots in the imbalances that these same central banks not only failed to prevent, but fostered. There is no larger imbalance than the vast imbalance that exists between the number of dollars flowing out of this country to buy things and the foreign currencies that flow the other way.

The honest way to correct this, and one that the US has used while practicing ‘tough love’ with numerous other smaller countries countless times in the past, would be to allow the currency to fall until the currency flows reversed.

But, in their inestimable wisdom, the world’s central banks have decided that “not right now” is the best course of action, and have opted for “later” as a better time. I can only ask, “What are they waiting for?”

When is a better time, and how will we know when we get there? My suspicion is that the answer is “We don’t really know, just not now,” and that makes me all the more cautious.

This is a companion discussion topic for the original entry at https://peakprosperity.com/central-bank-dollar-intervention-2/