RDP 9406: Reserve Bank Operations in the Foreign Exchange Market: Effectiveness and Profitability 6. Conclusion

Over the floating rate period, the Reserve Bank's foreign exchange operations have been profitable. Realised trading profits have amounted to about $A382 million and unrealised gains were $A553 million at the end of June 1994. When net interest income is taken into account, total profits rise to about $A3.4 billion. While we acknowledge that there is not always a close link between profits and the effectiveness of intervention, the existence of profits over a long run of years suggests that the Bank, on balance, has bought foreign exchange when its price was low (i.e. the $A exchange rate was high) and sold when its price was high (i.e. the $A exchange rate was low). This would indicate that intervention has been in a stabilising direction. Alternative tests, such as those proposed by Wonnacott, provide support for this conclusion.