ABSTRACT
That there has been large-scale intervention during the recent float should be clear from the evidence presented in Chapter 1 and also from the reports of m ajor central banks. The evidence from such casual empiricism is also reinforced by the studies of Williamson (1976) and Frenkel (1978b). The former author found that the use of international reserves by m ajor countries was not significantly smaller for the first few years of the current float com pared to the adjustable peg system. Frenkel’s (1978b) econo metric study led him to conclude that ‘patterns of country holdings and usage of reserves [with floating exchange rates] resemble to some extent the behaviour prescribed for a regime of pegged exchange rates’.1 Why then has intervention been so great during the recent floating period? To answer this question some of the arguments from the fixed versus floating exchange rate debate inevitably need to be introduced. But first a definition of ‘intervention’ is needed.
