Fixed Versus Flexible Exchange Rates

[DayDream Believer]

Very informative and interesting read!

http://www.treasury.gov/offices/international-affairs/economic-exchange-rates/pdf/Appendix_2.pdf

Cheers!
DayDream

[DayDream Believer]

In this article it says:



Lower-Income Economies



Lower-income economies with less developed monetary and financial sectors, and less credible
institutions, on the other hand, can face special problems. For some of these economies, a very
hard peg to a major currency can improve monetary stability and improve the efficiency of
commercial transactions. Typically, these economies, where credibility in existing institutions is
not yet strong, still have underdeveloped financial sectors and supervisory systems, suffer from
higher rates of inflation, and are in need of anchors for monetary policy.
__________________________________________________ ____

Isn't this what Iraq can be regarded as? And if so, is a hard peg possible?
I was going back through the archives reading opinions on the hard peg possiblity and ran across this:

posted by inquisitive

While we are on "Res Ipso Facto" (The facts speak for themselves) I am seeing signs of a pattern.

"The CBI mandated all banks be capitalized to 50 Billion Dinar...about 35 Billion USD." So if A is = to B then 1.433NID...$1USD

Oil reserves are to equal 35 Billion USD

The model using one third of the value of the USD + one third of the Euro+ one hundreth of the value of a barrel of oil = value of NID comes out to be 68Cents + 33.33Cents +41Cents =142.33(plus misc cents on the Euro or Oil)

The rumor that Goldraker posted from the friend who said ....50%higher, hard pegged to the USD......

So that is 1.50NID to the USD simply..however we will probably adjust to the dollar going down....

The definition of a Hard Peg, HP, is clear. You fix the exchange rate to a hard currency, and hold enough reserves to back up the peg(ie) through holding a stock of international reserves equal to the "Money Base". Full dollarization is an example.

An advantage of the Hard Peg is transparency. The exchange rate, in contrast with a price index is easily observable, and the information is available instantly.

Hard Peg or HP, especially Full Dollarization, is irrevocable...anybody can see it and testify to it. In full dollarization the exchange rate peg is automatic. That is highly relevant for cases where the policy or policymaker's credibility is a major issue.

The HP operates with the benifit of a strong commitment to fixing the exchange rate. Without such a commitment, interest rates may remain high and volatile.

And don't ever forget that we know the CBI has the banks keeping books at .310 which does not reflect the de-facto peg rate of 1476. They need a government to get out of a de facto peg.

The .310 still gives the bank a reserve of 50% higher than the 50 Billion NID reserves( allowing for a little give and take in the value of oil, the dollar and the Euro)

And that's how I see it... Lot's of Love from Inquisitive
______________________________________________

Any thoughts on this?

Cheers!
DayDream

[Justpraying]

In this article it says:



Lower-Income Economies



Lower-income economies with less developed monetary and financial sectors, and less credible
institutions, on the other hand, can face special problems. For some of these economies, a very
hard peg to a major currency can improve monetary stability and improve the efficiency of
commercial transactions. Typically, these economies, where credibility in existing institutions is
not yet strong, still have underdeveloped financial sectors and supervisory systems, suffer from
higher rates of inflation, and are in need of anchors for monetary policy.
__________________________________________________ ____

Isn't this what Iraq can be regarded as? And if so, is a hard peg possible?
I was going back through the archives reading opinions on the hard peg possiblity and ran across this:

posted by inquisitive

While we are on "Res Ipso Facto" (The facts speak for themselves) I am seeing signs of a pattern.

"The CBI mandated all banks be capitalized to 50 Billion Dinar...about 35 Billion USD." So if A is = to B then 1.433NID...$1USD

Oil reserves are to equal 35 Billion USD

The model using one third of the value of the USD + one third of the Euro+ one hundreth of the value of a barrel of oil = value of NID comes out to be 68Cents + 33.33Cents +41Cents =142.33(plus misc cents on the Euro or Oil)

The rumor that Goldraker posted from the friend who said ....50%higher, hard pegged to the USD......

So that is 1.50NID to the USD simply..however we will probably adjust to the dollar going down....

The definition of a Hard Peg, HP, is clear. You fix the exchange rate to a hard currency, and hold enough reserves to back up the peg(ie) through holding a stock of international reserves equal to the "Money Base". Full dollarization is an example.

An advantage of the Hard Peg is transparency. The exchange rate, in contrast with a price index is easily observable, and the information is available instantly.

Hard Peg or HP, especially Full Dollarization, is irrevocable...anybody can see it and testify to it. In full dollarization the exchange rate peg is automatic. That is highly relevant for cases where the policy or policymaker's credibility is a major issue.

The HP operates with the benifit of a strong commitment to fixing the exchange rate. Without such a commitment, interest rates may remain high and volatile.

And don't ever forget that we know the CBI has the banks keeping books at .310 which does not reflect the de-facto peg rate of 1476. They need a government to get out of a de facto peg.

The .310 still gives the bank a reserve of 50% higher than the 50 Billion NID reserves( allowing for a little give and take in the value of oil, the dollar and the Euro)

And that's how I see it... Lot's of Love from Inquisitive
______________________________________________

Any thoughts on this?

Cheers!
DayDream


Very interesting and thoughtful, I will have to reflect on this a while. It does sound very possable.