Comments on: Runs on countries and currencies

By: Adrian Peirson

Adrian Peirson — Thu, 30 Oct 2008 05:22:55 +0000

The Beginning of Hyperinflation. See it's not Just Me that thinks Paper money is worthless. There is no need for this to happen. http://www.infowars.com/?p=5630

By: Adrian Peirson

Adrian Peirson — Sun, 26 Oct 2008 21:58:44 +0000

Comparing two plummeting currencies is a bit misleading.
Supposing Putin came out with a Gold or Silver Backed currency as he has suggested, the Dollar and Sterling would be dumped big time.
Our currency, just like the Dollar is being destroyed, they want us to use the Euro.

By: mikestallard

mikestallard — Sun, 26 Oct 2008 21:49:53 +0000

Who will fix the currency exchange rates though?
Isn't it best to leave this to the experts (money markets) who have years of experience? They are betting their money on which currencies are over exposed (the pound, the dollar?) and which are solid as a rock (the yen?).
I can see a LOT of politics going on round a huge table. And, of course, the politicians, while they are expert at a lot of things, are in no sense financial wizards, are they?
If the politicians make a hash, then there will be lots of legal/illegal "hedge funds" springing up all over the place offering a "real exchange rate". (Honestly, what does, say, Mr Sarkozy know about the money markets?)
(I do not include, of course, our host on this blog, who has shown his expertise today on page 13 of the Telegraph).

By: adam

adam — Sun, 26 Oct 2008 15:14:49 +0000

But the economy is based on debt. The money has no intrinsic value. Sterling falls against the dollar yet the US has a ridiculous amount of debt.
The debt will never be repaid it just grows and grows.

By: Tony Makara

Tony Makara — Sat, 25 Oct 2008 15:34:59 +0000

If current exchange values are fixed for a given time it will allow national central banks to lower rates, increase liquidity, without inviting currency speculation. This isn't a question of all-follow-the-dollar but rather is an effective freeze on currency speculation while liquidity is increased. The alternative scenario of nations trying to cut rates in isolation will invite arbitrage and will lead to nations importing inflation as their currencies lose value.

By: Blank Xavier

Blank Xavier — Sat, 25 Oct 2008 14:04:04 +0000

In Argentina, the State pegged the peso to the dollar, which meant – in theory – they were enforcing full convertability; for every peso, the State held the equivelent value in dollars. The peso effectively became the dollar.

This works fine as long as you don't then mess about with monetry policy – printing your own pesos, for example – which amongst a range of other behaviours which weakened the convertability of pesos to dollars is exactly what the Argentine State did (because they're a State and that's what States do – economy idiocy for political reasons – and this is why it's so crucial the free market exists, which is to say, the State does not meddle, or you get what you see today where for example Wal-Mart in the US are see pay-day related spikes in *baby formula* sales ).

The peso was then pegged to the dollar, without the necessary reserves, speculation occurred (because obviously in this situation the peg is not a realistic measure of value) and speculative pressure forced the peg to be dropped and the peso devalued to its correct value (representing the extent to which it was actually backed up, rather than the extent to which the Government would have liked people to imagine it was backed up, which would have let them continue to spend more money than they had).

This rapid devaluation caused considerable economic hardship.

Of course, the longer this farce continued, the more it was going to hurt when it ended and the market saved a lot of people a lot of suffering by preventing the Argentine State from continuing with its madness. If only it had done so earlier, for the earlier this had occurred, the less harm would have been done.

By: Blank Xavier

Blank Xavier — Sat, 25 Oct 2008 13:55:06 +0000

Tony wrote:
> I refer to keeping current exchange values fixed for a given
> period, say six months

I'm confused. You mean *all* exchange rates? but what happens if the *other* currency fails? do we continue to convert at the fixed rate?

> so that nation states are able to increase liquidity by cutting
> rates without seeing the value of their currency decline
> because of arbitrage.

Do you mean *all* nations should fix *all* their exchange rates?

If this was so, consider the recent Icelandic failure. Their banking system has imploded under massive external debt. Consequentially, their currency is valueless – because it *is*.

If other countries agreed to assign an arbitrary value to the krona, it would be a lie.

Indeed, what would actually happen, if the State forced people, by law, to trade at the rate the State specified, is that the rates would be fixed and *no one would lend to them*.

That is, unless the State *also* then forced people to perform lending – which is of course a full violation of individual liberty and private property rights.

You can either have lending at the correct rate, or no lending at all.

By: mikestallard

mikestallard — Sat, 25 Oct 2008 09:06:04 +0000

This, surely, is what the Argentinians did? They pegged their peso to the American dollar. Prices then went up until nobody could afford anything and then – crash! – the whole house of cards came tumbling down.
A better example, perhaps, within living memory, is the crash that happened when the wise George Soros brought us out of the ERM on Black Wednesday – to the whoops of joy from the Left.

By: Tony Makara

Tony Makara — Sat, 25 Oct 2008 07:30:11 +0000

I refer to keeping current exchange values fixed for a given period, say six months, so that nation states are able to increase liquidity by cutting rates without seeing the value of their currency decline because of arbitrage. In the long run the solution should be international agreement on a new world currency to run alongside existing currencies with, naturally, foreign reserves held in the new currency. This would be overseen by a world central bank, which in turn would have the power to upgrade or downgrade the rate of exchange periodically for each nation state depending on national need and global consequence. This of course could only work by international consensus and there should be common agreement that those who are members of such a global currency system do not trade with non-members, thereby forcing intransigents to join up. Its clear that the era of using the Dollar as a base currency must end. The Dollar has proven to be unstable. People should not be fooled by the recent rise of the Dollar, which cannot be maintained without impacting on America's severe trade deficits. This rally will prove to be short-lived.

By: Blank Xavier

Blank Xavier — Fri, 24 Oct 2008 22:51:43 +0000

A fixed exchange rate?

I may be wrong, but I understand this to mean that you select a target currency (say the dollar), set an exchange rate between your currency and the target currency (for simplicity, lets assume 1:1 and that we accordingly reprice everything – the real cost of course remaining the same). We then ensure we have one dollar in the central bank reserves for every pound.

E.g. we adopt the dollar. Or the euro. Or the yen, whatever it is. We cannot print money as such, since every pound we print (which is worth one dollar) requires us to obtain one dollar in reserves.

How does adopting the euro or the dollar help us?