The entire foreign exchange Market forex revolves around currencies and their valuations relative to one another. These valuations play a large role in domestic and global economics. They determine many things, but most notably the prices of imports and exports.
Valuation and the Central Banks

In order to understand why interventions occur, we must first establish how currencies are valuated. This can happen in two ways: by the market, through supply and demand, or by governments (i.e., central banks). Subjecting a currency to valuation by the markets is known as floating the currency. Conversely, currency rates set by governments is known as fixing the currency, meaning a country's currency is pegged to a major world currency, usually the U.S. dollar.

Thus, in order for a central bank to maintain or stabilize the local exchange rate, it will implement monetary policy by adjusting interest rates or by buying and selling its own currency on the foreign-exchange market, in return for the currency to which it is pegged. This is called intervention.

Instability and Intervention

• Since currencies always trade in pairs relative to one another, 
• a significant movement in one, directly impacts the other. 
• When a country's currency becomes unstable for any reason, speculation, growing deficits, or national tragedy, for example, other countries experience the aftereffects. 
• Normally, this occurs over a long period of time, which allows for the market and/or central banks to effectively deal with any revaluation needs.