Under what rare circumstances does Yellen say intervention is acceptable?

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Intervention in Currency Markets is Acceptable Under Specific, Rare Conditions

US Treasury Secretary Janet Yellen has stated that government interventions in currency markets are permissible only in exceptional circumstances. The overarching principle, as agreed upon by major economies including within the G7 framework, is that exchange rates should be determined by market forces. However, interventions are considered acceptable for addressing disorderly markets or situations marked by excessive volatility, with the stipulation that such actions should be infrequent and preceded by consultation.
Addressing Disorderly Markets

Yellen's remarks, made in an interview with Reuters, highlighted the importance of maintaining market-determined exchange rates. The condition of a "disorderly market" serves as a key justification for potential intervention. This suggests a scenario where currency movements are not reflecting fundamental economic factors but rather are driven by speculative or panic-driven trading that destabilizes the financial system.
Mitigating Excessive Volatility

Beyond general disorder, the concept of "excessive volatility" also provides a basis for intervention. This refers to rapid and significant fluctuations in currency values that can create unpredictable economic conditions for businesses and investors. The goal is to smooth out extreme swings that could otherwise harm trade and investment flows, ensuring a more stable economic environment.
Consultation and Rarity as Prerequisites

Crucially, Yellen emphasized that any such market interventions should occur "only rarely." This underscores a preference for market mechanisms to dictate currency values and signals that direct government action is a measure of last resort. Furthermore, the requirement for advance consultation implies a coordinated approach among major economic powers, ensuring transparency and preventing unilateral actions that could disrupt global financial stability. This was echoed in a recent trilateral statement involving the finance ministers of Japan and South Korea, who agreed to "consult closely" on foreign exchange markets amidst concerns over sharp currency declines.

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Under what rare circumstances does Yellen say intervention is acceptable?

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