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  smartacusJan. 17, 2009 - 08:16AM JST

  Economics was never my strong subject. I have never understood why exchange rates aren't fixed. If I remember my history, they were pegged for the 20 years after World War II in order to stabilize the postwar economy. There is too much speculation with the current system.

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  some14someJan. 17, 2009 - 08:21AM JST

  Seems question is based on the assumption that global economy is destabilized due to Exchange Rate Fluctuations, that is not true.

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  gaijintravellerJan. 17, 2009 - 09:56AM JST

  If exchange rates were pegged, the result would be a certain amount of stability. The question we then need to ask is, "Can exchange rates be fixed?"

  They can be fixed for a time but not for ever.

  First we must consider what money is. On British notes there is a printed statement statement: "I promise to pay the bearer of this note the sum of ..." That tells us what money really is, just a promise. In effect, the value of that money is the value of the promise.

  Fixing exchange rates is like fixing credit ratings. Just as the US car industry's credit rating has diminished, the US's credit rating has dropped. Just as you cannot expect your bank to finance your extravagant behaviour indefinitely, the rest of the world cannot be expected to finance the Bush government's wars and fiscal irresponsibility indefinitely.

  The big question now is how much faith the rest of the world will have in the dollar under the Obama government.

  The dollar is one of the most vulnerable currencies in the world as it is the most commonly used currency for international trade. So many dollars exist outside the US and so many of the dollars inside the US belong to people from other countries.

  What would happen if China, for example, decided it no longer wanted to hold dollars?

  A look back to the history of the pound during the years of the Harold Wilson government. The pound was pegged at $2.40 until 1967. The world did not believe it was worth that much. The government did everything in its power to maintain that value, but was unable to. Devaluation could not be staved off. The pound crashed.

  That tells us what will happen if exchange rates are pegged. They will remain artificially stable for a time, only to be followed by a crash.

  After saying that, we must consider the case for most of Europe where effectively exchange have been pegged. This is the effect of the Eurozone. The exchange rate between countries in the Eurozone is pegged at one Euro to one Euro.

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  kenleewritesJan. 17, 2009 - 10:27AM JST

  Malaysia pegged the ringgit as a protective measure during the 1997 asian financial crisis. It served her well. My understanding (which might be wrong) is that pegging the currency back then was to limit the flow of money out of the country since outside forces were destroying the local economy back then. The current state of the global economy due to the sub-prime loans is somewhat a different type of problem; it started inside a local economy with a currency held by everyone. Like some14some said, its not due to exchange rate fluctuations, so I don't think pegging exchange rates now would stabilize the global economy.

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  30061015Jan. 17, 2009 - 11:33AM JST

  "Stabilize" the economy? On the contrary, it would just kill it off completely. People will always vote with their money, and money will always vote for the greatest values. From black market to barter, the market will as$ign values to every human activity dealing with goods and services. Exchange rates are set by what supply and demand perceives as a good/bad bet in the future. Fixing rates is like sticking your head in the ground, with your end game up in the air.

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  mareo2Jan. 17, 2009 - 04:22PM JST

  Is like a parachute, works fine for landing, but we dont fly with these. When economy stabilize it must to be changed back to a floating currency or it drag the economy down when the currency become to expensive compared with other currencies. Let' me make an example with a real case, in Argentine the current ''progresist'' gob forced a deal with the Oil companies and fixed the domestic price of oil at 42 green bucks, when the oil reached 150 green bucks the barrel, in Argentine it barely raised the price. But when the Oil dropped to 32 green bucks, in Argentine the oil keep raising for indirect factors.

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  JohnBeckerJan. 17, 2009 - 11:41PM JST

  The only major economy in the world with a pegged currency (for all practical purposes) is the Chinese yuan. Take away that artificial constraint, and the yuan explodes. That would cause some serious economic problems, but it's something that has to happen sooner or later.

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  telecasterplayerJan. 18, 2009 - 01:48PM JST

  Would pegged exchange rates stabilize the global economy?

  'Not sure.

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  loltehinterwebsJan. 18, 2009 - 06:35PM JST

  It would be a great idea. The fact that it has not been done shows that it would benefit the vast majority of people on earth, and that is not the goal of the policy makers.

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  bamboohatJan. 19, 2009 - 02:09AM JST

  No.

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  williamsmithJan. 19, 2009 - 11:05AM JST

  Pegging exchange rates may not stabilize the global economy but it would stabilize the exchange rates well.

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  hakujinsenseiJan. 19, 2009 - 11:51AM JST

  For most of the 20th century, America had essentially a pegged exchange rate as the currency was backed by gold and the price of gold fixed, thereby fixing gold prices world wide. It served America well and created stability in the world financial markets. In 1971, the Nixon administration abandoned the gold standard and speculation on gold and dollars ensued. The current financial crisis is the culmination of the inflated money supply due to the valueless currency the Fed has been printing ever since. One can not peg the exchange rate unless there is intrinsic value in a currency beyond a nebulous promise. The result would be economic isolation which would collapse any nations economy that sought to do in light of the internationalization of worldwide economies.

  loitehinterwebs is right. It would benefit the vast majority of the worlds people on many fronts and for that reason, the few that actually benefit from it long term will make sure that the currency will never be backed and that the exchange rate will never be pegged.

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  davidattokyoJan. 19, 2009 - 12:55PM JST

  fixed exchange rates are potentially weapons of financial mass-destruction.

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  sf2kJan. 20, 2009 - 03:13AM JST

  the only financial destruction will be the further collapse of the American economy. When it goes, so does the world. China holds a lot of American paper, so when that becomes worthless they're also toast. Removing American and China from the world economy doesn't matter what the rest of us do.

  Go local. We will end up with shadow local currencies as a currency security measure. I don't think I'm wrong, but I don't even have to be right. The depths of the depression haven't really hit yet. Grow local, build local and get a garden. Most of us import our food. Food security will go hand in hand with currency security as the most meaningful relationship. Bankers are too far in orbit to see this.

  If Obama can get Americans to start paying off their multi-trillions in debt anytime soon that would help but nobody knows the timing.

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  rajakumarJan. 20, 2009 - 03:58AM JST

  Currencies values are based on trust, if goods are there in as much quantity as currencies and their values,then there is good systems in a particular nation. The good systems is build by trust for the currencies in their land and its value buy power. In USA economy today their value of houses is falling via bubble scams exposure.

  USA multinational companies have fallen,taking down the rest of world nations economy also with them. The USA currencies have fallen in value to Yen currencies by almost 20 percent,because of demand for strong Yen in forex.

  The USA systems, have printed more USD currencies and have created a scam bubble in global trade systems. It is disease in the systems,that needs to be cured via more honesty-integrity in national economic systems globally.

  Many nations believed that lehman,aig,wells fargo,freedie mac,freddie mae and many others were bubble free,so it is their national financial systems that is lacking in honesty-integrity-quality for believing the bubble scam outfit companies.

  There is now slower cautious trading as a results of all exposures of scam multinational companies.

  Companies in mutinational trading that still are able to give a picture of total honesty-integrity in their systems will be value buys in 2009.

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