You've made lots of assertions.

We're just going 'round. I'll quit now. But, before I do, here's a recent paper that may make my points a little more clearly - http://www.gs.cornel...con/cae/09-02.pdf (31 page .pdf): [Substitute "dollar" for "rupee" and "Euro" for "dollar"].

The present paper is not concerned with the rationale behind a central bank’s aim, but in the pure mechanics of how it goes about achieving its objective. Suppose, for whatever be the reason, the RBI [Reserve Bank of India] wants to devalue the rupee vis-a-vis the dollar. Since India is on a floating exchange rate system, where banks and other foreign exchange dealers are free to announce the exchange rate (or, equivalently, the rupee price of the dollar), the RBI cannot influence the rate by diktat but by buying and selling on the foreign exchange market. It is believed that the way the RBI devalues the rupee is to ask a public-sector bank to buy dollars from the market. This typically raises the price of dollars and so, equivalently, causes the rupee to depreciate. Usually, the RBI stays behind the scene and the only visible action on the market is that of a public sector bank making a large purchase of dollars. Here is Mint newspaper’s web edition, Livemint.com, August 20, 2008 (2:45 pm), speculating about central bank intervention in India: “State-run Indian banks were seen selling dollars to help the rupee recover from a 17-month low […]. India’s central bank uses state-run banks to intervene if it wants to slow a rupee decline or prevent it from rising too quickly, and private bank dealers said Wednesday’s dollar selling looked like intervention.”

This is by no means special to the Indian central bank. To quote from a textbook (Auerbach, 1982, p. 414): “This method of influencing exchange rates is not always easy to detect. The central bank may have parties in the private sector intervene for them.” In the U.S., to effect an intervention in the foreign exchange market, the Fed will often contact a dealing bank, such as Citibank and buy currency at Citibank’s quoted rate (Lyons, 2001). Moreover, a lot of the Fed’s interventions, by some counts nearly half of them, are done secretly (Hung, 1997). And, often the explicit purpose of the Fed’s intervention is to influence the exchange rate (Evans and Lyons, 2000).


If the market is driving up the value of a currency, central banks have little power to counteract that over more than a short period of time. Too much money is involved - especially in the case of the dollar (which is the currency used for most of the world's commerce).

But since the main issue with the dollar is that the Yuan is vastly undervalued, this discussion about the Euro has been a distraction anyway... ;-)

HTH.

Cheers,
Scott.