After the dramatic collapse in the SNB's defense of the Swiss Franc peg to the Euro, there was a period of relative FX peace in which few if any central banks engaged in outright currency intervention (aside from the countless rate cuts so far in 2015 in response to the soaring strength of the USD, which has risen dramatically over the past year for all the wrong reasons). Then China last night reminded us what happens when in a centrally-planned world one or more markets take too great advantage of relative FX differentials, in this case Japan, whose Yen plunged from USDJPY 80 to 125, and the Euro, which tumbled from EURUSD 1.40 to just above parity.
Now, it's China's turn.
But as we pointed out before, FX interventions never take place in a vacuum, and especially during periods of rising dollar strength, when the entire FX world, and especially exporters and mercantilists, go berserk.
[28]
Furthermore as Stone McCarthy notes, "this is the sort of "international development" that the Fed will need to keep an eye on and assess as conditions align for the start of policy normalization." The reason is simple: what China just did could make a rate hike impossible as multinational US corporations will be slammed with a double whammy of soaring dollar and sliding CNY, making US exports that much tougher. And as we won't tire of repeating, the Fed can not print trade.
And just to help remind readers of what happens when the entire world engages in wholesale currency war, here is a complete list of all the recent FX interventions, courtesy of Stone McCarthy.
Summary of Recent FX Interventions:
The last period of any significant Fed interventions in foreign exchange markets was during 1994-1995 when the dollar reached all time lows against what were then the benchmark currencies of the Japanese yen and German deutsche mark, and the period of the Mexican Peso Crisis. After that, it was acting to defend the value of the yen and new-minted euro.
But even back then an intervention had become almost symbolic of a government's willingness to address a currency imbalance rather than having a lasting influence on the FX market. The long periods between interventions and fewer coordinated intervention actions is a tacit acknowledgement of that.
June 29, 2015 - The Swiss National Bank intervened in foreign exchange markets as the intensifying crisis in Greece resulted in a flight-to-safety that pushed the value of the franc higher.
January 27, 2015 - The Swiss National Bank intervened in foreign exchange markets after a run up in the value of the franc versus the euro subsequent to the lifting of its currency cap on January 15.
July 1-2, 2014 - The Hong Kong Monetary Authority bought about $2.1 billion over a two-day period to address increases in the Hong Kong Dollar. The HK$ is pegged at 7.80 per US dollar in a range of 7.75 to 7.85.
August 2013-December 2014 - On August 23, the Central Bank of Brazil announced a foreign exchange intervention program to provide $60 billion in cash and insurance to the foreign exchange market to support the real. The program was originally planned to run through December 2013, but was extended at a slower pace through the first half of 2014, and eventually concluded in December 2014.
October 19-November 10, 2012 - The Hong Kong Monetary Authority bought $4.2 billion at HK$7.75 per dollar. The HKMA said it as "not entirely correct to describe what we have been doing as 'intervention'." See November 9, 20122 inSight. [29]
February 7, 2012 - Interim President Thomas Jordan said the Bank would enforce a minimum rate of CHF1.2/EUR.
February 2, 2012 - Weakening in the value of the Swiss franc prompted comments from SNB Governing Board member Danthine that the Bank was ready to sell Swiss francs and buy euros to protect its exchange rate ceiling.
February 2, 2012 - Japan's Finance Minister Jun Azumi warned that "one-sided yen appreciation" could prompt another round of intervention in foreign exchange markets.
October 31, 2011 - The Bank of Japan intervened for a third time in the year to weaken the yen against the dollar. The yen fell to a low of about JPY77.89 after declining sharply to a new record on October 31. Japan's finance minister signaled further intervention until the yen had weakened and fx markets appeared more stable.
September 8, 2011 - Subsequent to the SNB action on Tuesday, FX trades shifted to other "safe haven" currencies, including the Norwegian krone. Norges Bank Governor Oystein Olsen indicated that Norway would defend the krone against becoming too strong. If it should, "In that case, monetary policy measures will be taken. In Norway, the key policy rate is the relevant instrument," he said.
September 6, 2011 - The Swiss National Bank said, "The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development." It set a minimum exchange rate of CHF 1.20, and said, "The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities. Even at a rate of CHF 1.20 per euro, the Swiss franc is still high and should continue to weaken over time. If the economic outlook and deflationary risks so require, the SNB will take further measures."
August 17, 2011 - The Swiss National Bank announced it would "expand again significantly the supply of liquidity to the Swiss franc money market" to address as "massively overvalued" Swiss franc.
August 10, 2011 - The Swiss National Bank expanded measures undertaken in the prior week to weaken the Swiss franc. The Bank said, "The substantial rise in risk aversion on the international financial markets has further intensified the overvaluation of the Swiss franc in the last few days. In the light of these developments, the Swiss National Bank (SNB) is taking additional measures against the strength of the Swiss franc. It will again significantly increase the supply of liquidity to the Swiss franc money market. The SNB aims to rapidly expand banks' sight deposits at the SNB from currently CHF 80 billion to CHF 120 billion."
August 4, 2011 - The Bank of Japan sold about JPY4.5 trillion to weaken the yen versus the dollar. The yen had fallen as low as about JPY77 per dollar. The Finance Ministry indicated that further intervention might be undertaken if necessary. The Bank of Japan expanded its easy monetary policy. It said it would, "enhance monetary easing by increasing the total size of the Asset Purchase Program by about 10 trillion yen from about 40 trillion yen to about 50 trillion yen."
August 3, 2011 - The Swiss National Bank took action to address the "massively overvalued" Swiss franc. It said, "Effective immediately, the SNB is aiming for a three-month Libor as close to zero as possible, narrowing the target range for the three-month Libor from 0.00-0.75% to 0.00- 0.25%. At the same time, it will very significantly increase the supply of liquidity to the Swiss franc money market over the next few days. It intends to expand banks' sight deposits at the SNB from currently around CHF 30 billion to CHF 80 billion. Consequently, with immediate effect, the SNB will no longer renew repos and SNB Bills that fall due and will repurchase outstanding SNB Bills, until the desired level of sight deposits has been reached."
March 17, 2011 - At 20:00 ET, the G7 finance ministers and central bankers released a statement [30] that they would jointly intervene in foreign exchange markets to defend the yen on March 18. "In response to recent movements in the exchange rate of the yen associated with the tragic events in Japan, and at the request of the Japanese authorities, the authorities of the United States, the United Kingdom, Canada, and the European Central Bank will join with Japan, on March 18, 2011, in concerted intervention in exchange markets. As we have long stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will monitor exchange markets closely and will cooperate as appropriate."
September 15, 2010 - The Bank of Japan intervened to weaken the value of the JPY versus the USD when the yen reached a 15-year low of 82.87. The Finance Ministry later announced the intervention totaled 2.12 trillion yen for the August 30- September 28 period -- all concentrated in a single day -- and a new record from the 1.7 trillion yen on January 9, 2004.
October 24, and 27-28, 2008 - The Reserve Bank of Australia acted to prop up the value of the Australian dollar. The AUD peaked at 0.9797 versus the USD on July 15, 2008 and had fallen to 0.6073 as of October 27.
October 8, 2008 - The Bank of Mexico intervened to stop loses on the Peso, auctioning $2.5 billion with the peso at 12.36 per dollar, down 1.74% from the prior day close.
July-September 2003 - The Japan Ministry of Finance confirmed a record high intervention for the quarter of JPY7.5512 trillion. All yen selling was conducted against the US dollar with action taken on 21 days during the period that included the late September G7 meeting.
September 22, 2000 - The Fed bought EUR 1.5 billion; coordinated with European Central Bank, Bank of Japan, Bank of Canada and the Bank of England. Prior to the intervention the euro was at EUR 0.8558, after the intervention it was EUR 0.8793.
July 20, 1999 - The Fed bought yen on behalf of the Bank of Japan. Prior to the intervention the yen as at JPY 137.00, after the intervention it was JPY 137.78.
August 17, 1998 - Russia devalued the ruble, defaulted on domestic debt, and imposed a 90-day moratorium on payment to foreign creditors.
June 17, 1998 - The Fed sold $833 million in cooperation with Japanese authorities. Prior to the intervention the yen was at JPY 137.00, after the intervention it was JPY 137.78.
August 14, 1997 - Bank Indonesia abandoned efforts to defend the rupiah and allowed it to float freely, effectively devaluing the currency.
July 2, 1997 - The Bank of Thailand devalued the baht to ease pressure on draining of foreign exchange reserves.
August 15, 1995 - The Fed bought $400 million against the German mark, joined by the Bundesbank and Bank of Japan. Prior to the intervention the yen was at JPY 93.63, after the intervention it was JPY 97.18. Prior to the intervention the mark was at DEM 1.4361, after the intervention the mark was DEM 1.4800.
August 2, 1995 - The Fed bought $500 million against the yen, joined by the Bank of Japan. Prior to the intervention the yen was at JPY 88.05, after the intervention it was JPY 91.15.
July 7, 1995 - The Fed bought $333.3 million against the yen, joined by the Bank of Japan. Prior to the intervention the yen was at JPY 84.94, after the intervention it was JPY 86.70.
April 30, 1995 - The Fed bought $750 million against the German mark and $750 million against the yen. The JPY/USD action was in coordination with the Bank of Japan. Prior to the intervention the yen was at JPY 86.50, after the intervention it was JPY 86.00. Prior to the intervention the mark was at DEM 1.3715, after the intervention it was DEM 1.3715.
April 19, 1995 - The U.S. dollar hit all-time lows of JPY 79.85 and DEM 1.34.
April 5, 1995 - The Fed bought $850 million against the German mark and $250 million against the yen, joined by the Bundesbank and the Bank of Japan. Prior to the intervention the yen was at JPY 86, after the intervention the yen was JPY 86.11. Prior to the intervention the mark was at DEM 1.3772, after the intervention the mark was DEM 1.3728.
March 3, 1995 - The Fed bought $450 million against the German mark and $370 against the yen, and was joined by 13 foreign central banks. Prior to the intervention the yen was at JPY 95.26, after the intervention the yen was JPY 94.10. Prior to the intervention the mark was at DEM 1.4418, after the intervention it was DEM 1.4240.
March 2, 1995 - The Fed bought $300 million against the German mark and $300 against the yen, and was joined by 13 foreign central banks. Prior to the intervention the yen was at JPY 96.73, after the intervention the yen was JPY 95.26. Prior to the intervention the mark was at DEM 1.4620, after the intervention it was DEM 1.4418.
January 9, 1995 - The Fed bought pesos for dollars at request of Banco de Mexico. Prior to the intervention the peso was at MXP 5.50, after the intervention it was MXP 5.40.
December 20, 1994 - Mexico allowed its currency to float, setting off the "peso crisis," which spread throughout Latin America and other countries and led to a then-record, U.S.-led bailout.
November 3, 1994 - The Fed bought $800 million against the German mark and $500 million against the yen, and was joined by an unidentified central bank. Prior to the intervention the yen was at JPY 97.52, after the intervention it was JPY 97.60. Prior to the intervention the mark was at DEM 1.5144, after the intervention it was DEM 1.5172.
November 2, 1994 - The Fed bought $800 million against the German mark and $800 million against the yen, and was joined by an unidentified central bank. Prior to the intervention the yen was at JPY 96.62, after the intervention it was JPY 97.52. Prior to the intervention the mark was at DEM 1.4938, after the intervention it was DEM 1.5144.
June 24, 1994 - The Fed bought $950 million against the German mark and $610 million against the yen, and was joined by 16 foreign central banks. Prior to the intervention the yen was at JPY 101.13, after the intervention it was JPY 100.50. Prior to the intervention the mark was at DEM 1.6043, after the intervention it was DEM 1.5830.
May 4, 1994 - The Fed bought $750 million against the German mark and $500 million against the yen, and was joined by 18 foreign central banks. Prior to the intervention the yen was at JPY 100.95, after the intervention it was JPY 101.84. Prior to the intervention the mark was at DEM 1.6374, after the intervention it was DEM 1.6542.
February 22, 1987 - Louvre Accord - agreed to try to halt the decline in the US dollar versus major currencies that was a result of the earlier Plaza Accord.
September 22, 1985 - Plaza Accord - agreed to depreciated the US dollar versus the Japanese yen and German Deutsche Mark as agreed at the G7 meeting of finance ministers earlier in the year.
January 17, 1985 - G7 Finance Ministers Statement:
The Ministers of Finance and Central Bank Governors of France, Germany, Japan, the United Kingdom, and the United States announced today that they had met to discuss a range of international economic and financial issues. The meeting, part of a regular series of consultations among these countries on economic and financial matters of mutual interest also involved IMF Managing Director de Larosiere for a discussion of the economic policies and prospects of the major industrial countries.
The Ministers and Governors, noting the recent developments in the exchange markets, expressed their commitment to work toward greater exchange market stability. Toward this end, the Ministers and Governors:
* Reaffirmed their commitment to pursue monetary and fiscal policies that promote a convergence of economic performance at non-inflationary, steady growth.
* Stressed the importance of removing structural rigidities in their economies to achieving the objectives of non-inflationary steady growth and exchange market stability, and expressed their intent to intensify efforts in this area; and
* In light of recent developments in foreign exchange markets, reaffirmed their commitment made at the Williamsburg Summit to undertake coordinated intervention in the markets as necessary.
The Ministers and Governors believe that this approach will provide a solid framework for sustaining recovery, reducing inflation, increasing employment, and achieving greater exchange rate stability.
