Exchange Stabilization Fund – Definition

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Exchange Stabilization Fund (ESF) Definition

The Exchange Stabilization Fund (ESF) is a U.S. Department of Treasury crisis fund which holds U.S. dollars, other remote monetary forms, and special drawing rights (SDR) reserves. These assets enable the Treasury to intercede in the foreign exchange (Forex) markets to affect trade rates. Generally, it works in international markets the same way a national bank of a country does to control the conversion standard of their money.

A Little More on What is an Exchange Stabilization Fund

The ESF was created by the Gold Reserve Act of 1934.

One of the essential features of Stabilization finance is that it works with the International Monetary Fund (IMF) through the Treasury’s special drawing rights (SDR). SDR is a form of international money that was created by the IMF. It is the weighted average of several convertible currencies. These assets might be added to existing outside monetary forms to affect the trade rates in the Forex.

The Treasury can convert SDR assets into dollars by trading them with the Federal Reserve, the national bank of the U.S. SDR can also be traded for gold and other global stores held by the Fed.

References for Exchange Stabilization Fund

Academic Research on Exchange Stabilization Fund (ESF)

From the exchange stabilization fund to the international monetary fund, Bordo, M., & Schwartz, A. J. (2001).  (No. w8100). National Bureau of Economic Research.

The exchange stabilization fund: how it works, Osterberg, W. P., & Thomson, J. B. (1999). Federal Reserve Bank of Cleveland, Economic Commentary. This paper aims to facilitate accurate assessments of the number of resources available to the Exchange Stabilization Fund (ESF).

Exchange Stabilization Fund¬†Loans to Sovereign Borrowers: 1982‚Äď2010, Munk, R. (2010)..¬†Law and Contemporary Problems,¬†73(4), 215-240. This article describes and analyses the role of U.S Treasury Department financing provided to sovereign countries from the Mexican Debt Crisis in August 1982 to 2010.

US foreign exchange¬†market intervention since 1962, Schwartz, A. J. (1996). Scottish Journal of Political Economy,¬†43(4), 379-397. This paper explores the Federal Reserve intervention in foreign exchange markets since 1962 as a partner of the Treasury’s Exchange Stabilization Fund.

Reinterpreting Bretton Woods: International development and the neglected origins of embedded liberalism, Helleiner, E. (2006). Development and Change,¬†37(5), 943-967. This article offers a reinterpretation of the origins of the 1944 Bretton Woods Agreements, one that is of particular significance to scholars of international development. This article demonstrates that the innovative ‚Äėembedded liberal‚Äô vision of Bretton Woods was in fact first put forward in the context of US‚ÄďLatin American financial relations in the 1938‚Äď42 period, and that this experience influenced the subsequent Bretton Woods negotiations.

The SDR as an international reserve asset: what future?, Obstfeld, M. (2011). Manuscript, University of California, Berkeley, 27. This paper reviews the history and performance of the Special Drawing Right (SDR) and examines the prospects for expanding its role in the international monetary system.

Treasury and Federal Reserve foreign exchange operations, TRENDS, E. G. (2001). Federal Reserve Bulletin. This report, presented by Peter R. Fisher, Executive Vice President, Federal Reserve Bank of New York, and Manager, System Open Market Account, describes the foreign exchange operations of the U.S.

The effectiveness of foreign-exchange intervention: Recent experience, 1985-1988, Obstfeld, M. (1990). In International policy coordination and exchange rate fluctuations (pp. 197-246). University of Chicago Press. This paper focuses on the practice and effects of foreign-exchange intervention during the years 1985-88 by the three largest industrial economies, the Federal Republic of Germany, Japan, and the United States.

Bretton Woods and the US decision to intervene in the foreign-exchange market, 1957-1962, Bordo, M. D., Humpage, O., & Schwartz, A. J. (2006). The deterioration in the U.S. balance of payments after 1957 and an accelerating loss of gold reserves prompted U.S. monetary authorities to undertake foreign-exchange-market interventions beginning in 1961. In this paper the authors discuss the events leading up to these interventions, the institutional arrangements developed for that purpose, and the controversies that ensued. They also discuss the impacts of these interventions.

US monetary policy in an integrating world: 1960 to 2000, Cooper, R. N., & Little, J. S. (2001). New England Economic Review, 33-57. This article is part of a paper presented at the forty-fifth economic conference of the Federal Reserve Bank of Boston, “The Evolution of Monetary Policy and the Federal Reserve System Over the Past Thirty Years: A Conference in Honor of Frank E. Morris,” held October 11, 2000. This article examines the impact of global developments on the practice of U.S. monetary policy, broadly defined to include regulatory and lender-of-last-resort functions as well as open market, discount, and intervention activity, over the past forty years.

The problems posed by negative pledge covenants in international loan agreements, Bradfield, M., & Jacklin, N. R. (1984). Colum. J. Transnat’l L.,¬†23, 131.

A new role for the Exchange Stabilization Fund, Humpage, O. F. (2008). Economic Commentary. This paper focuses on the origin and history of the Exchange Stabilization Fund (ESF) and the new role assigned to it.

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