• Foreign Exchange Intervention
• Other International Activities

The foreign-exchange value of the dollar has an effect not only on the prices we pay but also on prices in the entire U.S. economy. That’s why it is of concern to the Fed.

Depending on the strength or weakness of the dollar with respect to other currencies, the impact on individuals and businesses will vary. When the dollar is strong, the cost of buying goods and services from abroad is lower than when the dollar is weak.

The Fed closely monitors developments in the foreign exchange (FX) market. This is largely due to its impact on the U.S. economy that results from the increased economic interdependence among countries of the world.

The Fed does more than observe the changing value of the dollar; it also influences it—both through its monetary policy and by direct intervention in the FX market.

At times, the Fed enters the FX market, either buying or selling dollars in exchange for a foreign currency. The U.S. Treasury Department officially has the primary responsibility for international financial policy. But its decisions are always made in consultation with the Fed. Moreover, when there is a decision to intervene in the FX market, the Federal Reserve Bank of New York conducts the intervention.

The intervention is conducted with funds belonging to both the Fed and the Treasury. Since the size of the Fed’s intervention is small compared to the total amount of FX trading, it does not influence the demand and supply conditions in the FX market. However, it influences the market sentiment relating to the value of the dollar. The frequency of the Fed’s FX intervention varies.

The Federal Reserve conducts other activities in the international arena, providing a wide range of services to over 200 foreign customers, including:

• central banks
• foreign governments
• official international institutions, such as the International Monetary Fund

The services the Fed provides to its international customers include:

• maintaining checking accounts
• investing funds
• executing foreign exchange operations
• holding assets for safekeeping

The foreign-owned gold stored in the gold vault at the Federal Reserve Bank of New York constitutes the world’s largest known concentration of monetary gold.