ABSTRACT
This chapter explains what various roles do national central banks perform alongside their activities in seeking to influence exchange rates via foreign exchange market interventions and what the effects of these interventions are. It shows the responsibilities of the world's central banks and primary central bank instruments of monetary policy, a key money measure is the monetary base, and how monetary policy actions affect market interest rates. The chapter illustrates how central banks intervene in foreign exchange markets, structural interdependence, and how it can lead nations to cooperate or to coordinate their policies. It explores the benefits and costs of international policy coordination and the possibility that nations could gain from adopting a common currency. The chapter also provides a reason why central banks hold such securities and deposits is so they can trade the assets when they wish to try to change the value of their nation's currency in foreign exchange markets.
