• -5

    gaijinfo

    Yes. Fixed by a gold standard. Course, that would take power out of the hands of governments, and those that benefit by their ever present threat of violence.

  • 2

    Brainiac

    I have never understood why exchange rates are not pegged. Can someone with an economic background explain that to me please?

  • 2

    AKBfan

    How to peg them? All pegs have eventually failed as government policies, variable economic conditions in different countries and blatant manipulation eventually break them. Only peg can be in common fiscal and economic system (like the US or like Europe says it is going to be one day - fat chance).

  • -1

    gaijinfo

    Can someone with an economic background explain that to me please?

    Pegging currencies would be simple. All you would have to do would be to keep the monetary supply FIXED in each country. That would mean that central banks wouldn't be able to inflate the currencies.

    For example, if there were ONLY one billion dollars, and ONLY ten billion yen, and that amount of dollars and yen never changed, the exchange rates would be pretty steady.

    The problem is that central banks tend to follow a monetarist policy, which means they increase their monetary supply to match with their economic growth.

    This means that if one economy grew faster than another, that faster growing economy would expand their monetary supply faster than the slower growing economy, and it would slightly change the exchange rates.

    OR, all the central banks would have to agree to expand the monetary supply (inflate) at the same rate.

    Now, because the dollar is the reserve currency, when the U.S. decides to inflate, other countries, if they want to maintain their peg (which many do) they have no choice but to inflate along with the U.S.

    This has been particularly harmful recently, as the U.S. has been aggressively printing money with QE1, QE2, and QE3. This is why weaker economies, such as those in central and south america are experiencing horrible inflation.

    This is what economists mean that the U.S. is "exporting inflation."

    Back in the heyday of the British Empire, before WWI most economies were based on gold, which FORCES everybody to maintain their exchange rates, as you can only get more gold so fast. Not nearly as fast as banks can print money.

    This was actually pretty stable, and led to some pretty good economic growth. When governments needed tons of quick cash to fund WW1 (and later WW2) they went off the gold standard, which allowed them to print tons of money to pay for the wars.

    There's plenty of problems in going back to the gold standard today. To name a few:

    1) it would destroy the U.S. economy, as the dollar is the reserve currency

    2) it would significantly limit the power of central banks

    3) It would significantly limit governments from waging wars with borrowed (or printed) money.

  • 2

    lucabrasi

    There's plenty of problems in going back to the gold standard today. To name a few:

    1) it would destroy the U.S. economy, as the dollar is the reserve currency

    2) it would significantly limit the power of central banks

    3) It would significantly limit governments from waging wars with borrowed (or printed) money.

    And on the down side?

  • -1

    gaijinfo

    And on the down side?

    Well, I didn't really mean "problems" I meant "reasons for resistance."

    Personally I think a gold standard would be better for everybody.

    At least those few humans not connected to governments and banks in some way.

  • 0

    kchoze

    I don't see my opinion here. I'm personally in favor of something like a second Bretton-Woods, sans gold. Meaning countries would try to keep their exchange rates stable with one another, but allowing for fluctuations to take into account major trade deficits or surpluses and differing inflation rates. Hard exchange rate fixing would be disastrous in the long-term, as it always is, look at what pegging the Argentinian Peso to the US Dollar did to Argentina, for instance.

    Hard currency pegs are always terrible, economies are dynamic, not static. So as they grow and fluctuate, the currencies must be able to fluctuate with them, otherwise a static fixed currency on a changing economy risks provoking major financial crises which are completely unnecessary. If currencies cannot bend, then they must break, or break the economy.

    As to the gold standard... it's the worst idea ever. It's delegating the control of a currency from governments and central banks to mining companies, because inflation would be controlled by how much of this mostly useless metal we can get out of the ground. If you find a big gold vein, you can swamp the world markets with a lot more gold, and thus cause inflation for everyone. It's insane.

    I know some are anti-government, but let's be reasonable.

    1- A fixed currency supply causes distortion on a dynamic economy, which eventually creates needless crises (financial panics were common in the 19th century, and inflation was less stable than after WWII with big inflationary and deflationary periods) 2- A currency must then be controlled by someone to try to match its growth to the needs of the economy. 3- If we leave currency in the hands of private interests, it is likely that a cabal of a few influential and rich people will take control of the sector, thus biasing this vital economic lever towards their private interests and not the interests of the economy as a whole. 4- Therefore, the government, being accountable to the people and having one of its main interest being the health of the economy at large (if the economy goes bad, the government gets replaced), is the only institution that we can trust for controlling a currency, even if it is not perfect.

  • -1

    BertieWooster

    But exchange rates ARE fixed.

    In the sense that Sumo bouts and bent horse races are.

    "FIxed" to make a profit for the very, very few.

  • 1

    WilliB

    The question is misleading. "Fixed" against what? Against a gold standard? Bretton Woods again? That would certainly be a good idea, but none of the spending-addicted politicians of the world will accept this.

    Or "fixed" as simply a government decreeing a fixed exchange rate? All that results is in economic distortion and a black market.

  • -1

    philsandoz

    Fixed? Do you mean as fixed as this question? Please give a third alternative.

  • 0

    BertieWooster

    philsandoz,

    Isn't "I don't know" a third alternative?

  • -1

    badsey3

    The alternative would be for people themselves to move to a personal gold/silver/other standard. China/Rome historically had silver as the people's currency. Silver is also antibacterial/hygienic.

    Having the people own the currency is really the best way to keep Government/Banks in check (do something the people don't like and they have the ability to reject the fiat money). And having a hoard of precious metals and rare earths on hand is good for industry.

    Turkey is maybe the best example. With the runaway inflation people went physical gold/silver. That stabilized the economy and now they actually have billions in gold that they trade with Iran for oil etc. China Gov right now is buying huge physical gold. The people of India historically have bought gold/silver (jewelry).

  • 0

    ka_chan

    If currencies were fix, how would the currency traders steal honestly from the public?

  • 0

    Laguna

    One might as well try to "fix" one's pulse or breathing rate. An entirely meaningless question.

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