CHAPTER 9

Central Banks, Capital Flows and Currency Crises

Policy, reserves and contagion

Opening question

“What can a central bank do to defend its currency?”

In this chapter

How monetary policy moves the exchange rate
Foreign-exchange intervention and sterilisation, with a worked example
How much reserves a country needs, and how to measure it
Exchange-rate regimes from free floats to currency boards
The impossible trinity: why a country cannot have everything
Capital flows, hot money and sudden stops
How currency crises unfold, from 1992 to 1997 and beyond
The State Bank of Vietnam and the management of the dong

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This chapter is in the full book

Chapter 1 is free to read online. The full text of chapter 9 — with its tables, figures, worked examples and practice lab — is available in the complete edition of Forex and Crypto Investing: From Theory to Practice (Volume 3, NXW Investment Library).

Read Chapter 1 free Get the full book — [email protected]

Sections of this chapter

9.1 The central bank and the currency

9.2 Monetary policy and the exchange rate

9.3 Intervention and sterilisation

9.4 How much reserves are enough?

9.5 Exchange-rate regimes

9.6 The impossible trinity

9.7 Capital flows, hot money and sudden stops

9.8 Anatomy of a currency crisis

9.9 What investors can learn

9.10 The State Bank of Vietnam and the dong

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