ABSTRACT
After the breakdown of the Bretton Woods system in March 1973, most economists predicted that central bank intervention in foreign exchange markets would diminish dramatically. This did not, however, turn out to be the case. Evidence suggests that the use of official foreign exchange intervention actually increased under flexible exchange rates (Frenkel (1978), Dooley (1979». Moreover, most central banks, as matters of policy, claim that they sterilize their intervention operations. If this is true, then they offset their foreign currency transactions with open-market operations, leaving the monetary base unchanged.
