The same day, other central banks announced specific measures to cope with these continued tensions. It is important to stress that the action in connection with the TAF marked the first multilateral central bank co-operation in the money market field, a market which is central to the implementation of a central bank’s monetary policy.
The most relevant conclusions suggest that the narrower the local markets and the fewer the instruments to hedge out currency risk, the better a managed floating exchange rate regime is to maximize social welfare. In a context of imperfect functioning of foreign exchange markets and incomplete capital markets, the adverse effects of a significant depreciation either on inflation or wealth is not negligible.