The Stabilization Fund, also known as the “Foreign Exchange Stabilization Account”, is a special fund established by a country’s authorities for the purpose of stabilization.
This is a form of indirect exchange rate control.
The foreign exchange stabilization fund is generally composed of foreign exchange, gold and domestic currency.
When a period continues to rise, the local currency exchange rate continues to fall, through the stabilization fund to sell foreign exchange, buy local currency;
On the contrary, they sell their own currency and buy foreign exchange to stabilize the exchange rate.
Since the foreign exchange stabilization fund is not inexhaustible, when a country’s international balance of payments occurs fundamental or long-term imbalance, and the exchange rate continues to rise and fall, the use of the stabilization fund must be carried out carefully.
