Recently East Asian countries that have amassed large US dollar reservesface a growing threat of big losses from a sudden decline in the dollar. Thisthreat evokes an issue of the optimal commitment of exchange ratestabilization once raised by Isard (1995) who interpreted the cost ofbreaking the parity as the capital gain awarded to speculators, in the eventthe domestic currency is devalued. The only difference in this paper isrevaluation. This paper models the central bank’s optimal commitment toexchange rate stabilization when it faces pressure of exchange raterevaluation which may well describe the current episode in East Asiancountries. Using a simple equilibrium model optimizing speculators, marketmaker and the central bank are explicitly introduced and the market maker’shedging activity is highlighted. The paper considers two equilibria, classicmarket intervention and market intervention combined with direct regulationon the market maker’s position, the latter of which believes to be commonlyexercised by some East Asian governments. The paper shows that the directregulation may incur larger expected loss on the central bank’s reservesalthough it leaves the central bank’s interest rate policy more room tomaneuver