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Sell foreign exchange assets, purchase own currency. Raise interest rates (attract hot money flows. Reduce inflation (make exports more competitive. Supply-side policies to increase long-term competitiveness.
Sell foreign exchange assets, purchase own currency. Raise interest rates (attract hot money flows. Reduce inflation (make exports more competitive. Supply-side policies to increase long-term competitiveness.
A Government could engage in following: If Govt reduces spending, supply of capital intensive goods (which are necessary for production) reduces, prices rise, consumers demand less of domestic currency because they would rather save then spend. Once domestic demand goes down, the currency should stabilize.
It usually does so with its own reserves or its own authority to generate the currency. Central banks, especially those in developing countries, intervene in the foreign exchange market in order to build reserves for themselves or provide them to the country's banks. Their aim is often to stabilize the exchange rate.
A currency may depreciate for a number of reasons, including a negative trade balance, interest rates, inflation, monetary and fiscal policies, and political stability. Central banks may even introduce negative interest rates to force currency depreciation, often if the currency is so strong it's damaging exports.
A Government could engage in following: If Govt reduces spending, supply of capital intensive goods (which are necessary for production) reduces, prices rise, consumers demand less of domestic currency because they would rather save then spend. Once domestic demand goes down, the currency should stabilize.
The idea is that with less money in the economy, each unit is more valuable. So by decreasing the money supply, a central bank can prop up the value of its money and stop inflation. The main way central banks control money supply is buying and selling government debt in the form of short term government bonds.
The usual goals of monetary policy are to achieve or maintain full employment, to achieve or maintain a high rate of economic growth, and to stabilize prices and wages. The Fed uses three main instruments in regulating the money supply: open-market operations, the discount rate, and reserve requirements.
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