Buybacks?

[jupitergirl]

When a public company deems there shares to be undervalued they take there cash and buy back shares to add value to the current shares outstanding. Does any one know if this is the same concept used with central banks? I know you all know where I am going with this. We have all heard rumor that the cbi is buying back dinar....i know there is no proof but if the cbi bought back 20 - 25 billion usd worth of dinar at 1166 it would add value to the dinar left outstanding. This would bring there reserves back to where they were about 2 years ago and give them more purchasing power. So does anyone know if this is a practice of the worlds central banks? Thanks.....JG

[dvforumuser]

When a public company deems there shares to be undervalued they take there cash and buy back shares to add value to the current shares outstanding. Does any one know if this is the same concept used with central banks? I know you all know where I am going with this. We have all heard rumor that the cbi is buying back dinar....i know there is no proof but if the cbi bought back 20 - 25 billion usd worth of dinar at 1166 it would add value to the dinar left outstanding. This would bring there reserves back to where they were about 2 years ago and give them more purchasing power. So does anyone know if this is a practice of the worlds central banks? Thanks.....JG

For a pegged currency, the exchange rate is basically the total currency divided by the reserves that back it. That is different for a company whose share price is dominated by their revenue not their cash holdings (though that does figure into the picture). So if a central bank were to spend half its reserves to buy back half its currency, that ratio does not change so the exchange rate wouldn't change either. That assumes the reserves are not replenished in some other fashion of course. If you can keep reserves the same, and still buy back your currency, than I would think that would increase the exchange rate. Whether central banks ever do such a thing, I don't know.

[dvforumuser]

To make this work the central bank would have to use some new funds to buy back so as to not lower their reserves. But in that case they could just add the new funds to their reserves and that would allow the same percentage change to the exchange rate, so I don't think it does make sense to actually buy back.

Edited March 30, 2012 by dvforumuser

[Karate-D]

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