Speculative currency attacks with endogenously induced commercial bank crises

Article Abstract:

The double drain model of an exchange rate crisis is introduced to demonstrate the influence of an endogenously induced internal drain on speculative attacks on a currency. The model shows that when an internal drain in the form of deposit money is used to buy foreign exchange, the resulting external drain that triggers a banking crisis may be curbed if banks limit cash payments. The restriction postpones devaluation and dampens external drain because capital gains on currency speculation will be obtained only after the restriction is lifted.

International finance, Bank runs, Bank reserves

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Central bank intervention and exchange rate volatility

Article Abstract:

Studies on the effects of foreign exchange intervention by central banks to influence exchange rates, using data from the 1970s, convey that intervention undertakings that do not impact the monetary base carry, at most, a short-term effect on exchange rates. However, more recent studies suggest that the intervention efforts that ensued after the Plaza Agreement affected both the level and variance of exchange rates.

Administration of General Economic Programs, Foreign Exchange & Reserves Policy, Evaluation, Central banks, Monetary policy

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The timing and size of bank-financed speculative attacks

Article Abstract:

Research was conducted to examine the anatomy of currency crisis when banks are financially healthy. Results show that collapse occurs worse when the crisis is financed by banks than when credits are not allowed by banks during the crisis. The findings imply that careful management of bank balance sheet risks and restrictions on bank loan activities may lessen, if not prevent, a currency crisis.

Commercial Banks, Commercial Banking, Banking industry, Economic aspects, Currency devaluation, Devaluation (Currency), Bank loans

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