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Macroeconomics (DB 4)
Central banks buy either their own currency or the currency of another nation in an effort to control exchange rates. The reason they do this is mainly because they want to make sure that their economy is stabilized. The policy is called the “Monetary Policy” in which the Central banks want to be able to control the money supply and the amount of money that’s circulating in the economy. Also, they want to keep the exchange rate down and if the supply of a currency exceeds the demand for it, its value will fall in the foreign exchange market [1].
In an effort to stabilize the financial systems in 2007- 2009, banks cut interest rates together. The Federal Reserve has injected $233 billion dollars in the financial system. The Bank of China has injected $6 billion dollars in the first week and then $9 billion dollars after that. The European Bank injected$90 billion dollars with a focus on operating the financial systems without too much control over developments of currency markets. There was a 3.4% decrease in GDP during the recession. GDP decline was about 6% and about 750,000 job losses.
Each country had their own share of problems. Besides the European Union and United States, China has the largest economy. China reduced the amount of money that their banks are required to hold in reserve in order to free up cash for lending.
I agree with the actions of the central banks during that particular time. I believe that in their position,