Each country has a central bank that may intervene in the foreign exchange markets to control its currency's value. Central banks have other duties besides intervening in the foreign exchange market.In particular, they attempt to control the growth of the money supply in their respective countries in a way that will favorably affect economic conditions.
Central banks commonly manage exchange rates for three reasons :
• To smooth exchange rate movements
• To establish implicit exchange rate boundaries
• To respond to temporary disturbances