"No central bank can be indifferent to its currency's value in the foreign exchange market." Discuss

What will be an ideal response?

— despite the "Monetary Policy Autonomy" theory of the original supporters of floating exchange rates
— exchange rate's role in inflation
— prices are sticky in the short run, so foreign developments can affect real interest rates and real exchange rates at home
— don't want their exchange rate to be too volatile as it affects the demand for their domestic products
— appreciation or depreciation can cause inflation that is difficult to counter
— banks intervene on a discretionary basis so it is still necessary for them to continue to hold foreign reserves
— "dirty floats" stabilize output and price level after shocks that affect exchange rates
— empirically: after 1973 countries have continued to intervene to affect exchange rates