SAO PAULO • History shows that central banks rarely stem a currency’s long-term decline simply by spending foreign-exchange (forex) reserves. Yet, not stepping in at all can prove far worse.

That’s the argument used by authorities in Brazil, Indonesia and most recently Argentina to explain why it makes sense to shower billions of dollars on what looks like a losing bet. This week alone, Argentina spent about US$3 billion (RM12 billion), or 5% of its reserves, to bolster the peso after it plunged to a record low. Then, wielding another monetary cudgel, it unexpectedly goosed interest rates.

In Buenos Aires, the combination worked — at least for today. The peso ended just a blip or two in the green after sliding 1.8% earlier. It’s still this year’s worst-performing major currency, nosing out Russia’s ruble and the Turkish lira.

Indonesia is a more cautionary tale. The South-East Asian nation’s central bank drained US$6 billion of foreign reserves in February and March partly to stabilise the rupiah, and may have further eroded the US$126 billion pile as it stepped up intervention this month. But the moves, coupled with a threat to hike rates, didn’t calm volatility. That led the central bank to say it’s preparing a second line of defence to ensure liquidity.

Brazil’s interventions in the forex market, using currency swaps, became so regular between 2013 and 2015 that traders started likening them to “ração diária”, the moment each day set aside to feed your pets.

That didn’t reverse the depreciating real, given the nation’s deteriorating fiscal accounts and political turmoil that culminated with a presidential impeachment. — Bloomberg