Central Banks

Talk of more intervention in the FX market

Stopping a run on a bank or a currency is one of the hardest things to do. If people don’t think their money is safe, they take it out and it becomes a self-fulfilling prophesy.

That’s what is happening in Argentina at the moment.

Here’s a chart of the US dollar against the peso:

The central bank is selling US dollars at the moment and buying pesos as it tries to stem the decline. The numbers are small, with $200 million said to be sold today in a move that’s negligible in the grand scheme of USD trading.

But there is always the risk of a broad run. It would be easy for the market to absorb problems from Argentina but currencies in Brazil and Turkey are also under pressure and before you know it, there could be squeeze on emerging markets, which is already ongoing to some extent.

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