What Are Foreign Exchange Auctions?

Cubby Bice serves as president of Bice Wealth Management, a financial consulting firm based in Mooresville, NC. As president, Cubby Bice helps clients successfully plan and distribute their investments. As a financial advisor, he has taught several finance and investment classes, including foreign exchange.

A foreign exchange (FX) auction is a monetary policy that national banks have adopted to trade currency on the foreign exchange market. The primary objectives of the foreign exchange auction are to relieve exchange rate pressure brought on by large, short-term foreign money inflows, close the gap between the private and public sectors, and increase global reserves.

With foreign exchange auctions, the national bank might periodically trade foreign currency to maintain the country’s foreign exchange reserves at an appropriate level. The national bank makes the local currency more available by buying foreign currency and removing foreign money from circulation while raising. It consequently results in a decline in the value of the local currency.