macroeconomics (1 Viewer)

[flip]

i was just wondering....
when there is intervention in the foreign exchange market.....
let's say the rba wants to dollar to appreciate.
So they sell foreign exchange, buy AUD.

this has the effect of decreasing, M0, with a multiplied decrease effect on M3 (MS) so hence interest rates increase.

my problem is with the selling forex, buying AUD -> decreasing M0/M3/MS

since M0 = Base Money = CN + R = FE + GS – GA

a decrease in FE would hence decrease M0
but where does the AUD that it has received in exchange go?

 

[LMF^^]

It goez into a safe inside the RBA.

 

[redslert]

money doesn't go anywhere
it's an exchange of one for another

if you look at the RBA balance sheet, they use reserves to purchase forex or vice versa
it all balances out