Intervention

Most major currencies float freely, but authorities sometimes step in. Currency intervention means the central bank or finance ministry trades in the market itself, using foreign reserves to buy its own currency (to support it) or selling its own currency (to weaken it).

Forms

• Unilateral: one country acts alone.
• Coordinated: several central banks act together, as with the 1985 Plaza Accord, when major economies agreed to bring down the US dollar.
• Verbal intervention ("jawboning"): officials warn that they are watching moves closely or are ready to act, hoping the threat alone slows the move.

Well-known episodes

• Japan intervened to support the yen in September and October 2022 and again in 2024, after sharp falls against the dollar. In Japan, the Ministry of Finance decides on intervention and the Bank of Japan carries it out.
• Switzerland: the Swiss National Bank defended a minimum exchange rate of 1.20 francs per euro from 2011 and abandoned it on 15 January 2015, causing one of the largest one-day moves in a major currency in modern times.

Worked example

Illustratively, a currency falls 8% in a month. Officials say they are "watching with a high sense of urgency". A few days later, the currency jumps 2% in minutes without any data release. Traders short the currency can be stopped out far beyond their levels if the move is fast enough.

Practical note

Intervention is unpredictable in timing and can cause gaps and heavy slippage. See the USD/JPY profile and EUR/CHF profile, and what moves currency prices.