Keywords: Exchange Stabilization Fund, manipulation, dollar, FOREX, ....

The Exchange Stabilization Fund (ESF) is a branch of the United States Treasury Department which manages a portfolio of domestic and foreign currencies for the purpose of foreign exchange intervention.

Since it is a finite amount of money, not appropriated by Congress, it probably is not often used to pump the stock market or even the market for Treasuries.

On August 29, 2007 Jim Sinclair called it “the secret of all secrets and the NSA of finance”.

On May 23, 2008 Sinclair notes that the ESF mandate extends beyond foreign exchange to include gold and other instruments of credit and securities. He suggests that it is a source of US funds to buy “security and debt issues of ... cash strapped US, and in some cases broke financial, entities ”

From

“The Exchange Stabilization Fund: How It Works,” Economic Commentary, Federal Reserve Bank of Cleveland, December 1999) we have the following.

• “Established by Congress in 1934 to help stabilize the international value of the dollar, the ESF received little public attention until it was used in the provision of financial assistance to Mexico in the wake of the peso crisis of 1995. ”

• “In December 1997, the United States announced a $5 billion commitment toward an international package of financial assistance for South Korea. Two months earlier the United States pledged $3 billion for assistance to Indonesia. In both instances, the Exchange Stabilization Fund (ESF) was to be involved. ”

• “The working fund of the ESF has expanded over time, reaching as high as $42 billion in mid-1995.”

• “The Gold Reserve Act of 1934 ...... explicitly authorized it to operate without congressional oversight and accountability. In other words, Congress gave exclusive control of the ESF to the executive branch. All decisions regarding the ESF are made by the Secretary of the Treasury, subject to the approval of the President.............Legislative changes in the late 1970s reduced somewhat the secrecy under which the ESF operates and made it more accountable to the Congress.”

• “Since the ESF’s inception, the Federal Reserve Bank of New York has been the officially designated agent for the ESF in intervention operations. In 1962, the Federal Reserve System’s Federal Open Market Committee (FOMC) authorized open-market transactions in foreign currencies for the account of the Fed, and since then, the Federal Reserve Bank of New York has acted as agent for both the Fed and the ESF in such transactions. Starting in 1978, the ESF and the Fed have almost always intervened jointly. Although the decision to intervene is usually made jointly by the Treasury and the Fed, it falls primarily under the Treasury’s purview. While the two entities routinely intervene in the same direction and amounts for their individual accounts, formal independence is maintained. ”

The Exchange Stabilization Fund is described by the U.S. Treasury here.

You will find:

•   Relations with the Federal Reserve  

• Legislative Basis  

• Finances & Operations

• History

• Latest Financial Reports to Congress

The New York Fed describes ESF FOREX operations here.

At this Fed location is information on specific instances of “Foreign Exchange Intervention”. The data is not entirely current.

Presumably the ones listed as a U.S. Intervention are by the Exchange Stabilization Fund.

I guess the U.S. Interventions are orchestrated by the Exchange Stabilization Fund

Henry C K Liu is providing an arguably more objective and certainly more current view of The Fed and the strong dollar policy here. It includes discussion of the ESF from which these statements are extracted:

The Exchange Stabilization Fund (ESF) was established at the Treasury Department by the Gold Reserve Act of 1934 as part of the New Deal.

Section 7 of the Bretton Woods Agreements Act of 1945 as signed by 28 nations ... required an amendment to the Federal Reserve Bank Act of 1913 to maintain the exchange value of the dollar, making ESF operations permanent.

Since then, the ESF has managed a portfolio of domestic and foreign currencies for the purpose of foreign exchange intervention to allow the US to influence the exchange rate of the dollar without directly affecting the domestic money supply. The ESF holds of three types of assets: dollars, foreign currencies, and Special Drawing Rights (SDRs) in the International Monetary Fund (IMF). As of April 30, 2008, the ESF was holding assets totaling US$51.2 billion of which $40.8 billion was retained profit.

James Turk is yet another individual who has great insight into the ESF.