Wag the dog.

I thought it was related to the amount of trading between the countries, and that the biggest exporters had the strongest currencies, but I may be wrong.

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it's really tangled...

still trying to fit it all together...

when the US dollar is low...other countries buy more US products...

so you are right in that sense ...there is that tie in between exports and the exchange rate.

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ps did you hear that "the office" went down like a lead brick at it's pre screening of the US version..

When the main funny bit about a series is the main character...what makes them think it will translate!!!!!

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Sounds like they're too lazy to create their own characters... Do you know if they used canned laughter? It wouldn't surprise me if they did so the audience knew when to laugh... Laughing

I heard they also imported Coupling (not my favorite but it can raise a chuckle occasionaly) and that bombed as well.

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Re: Wag the dog.

needsandwants wrote:

Who is it exactly with this demand and how is it possible for the tail to wag the dog like this ?

For the first part of your question:

National reserves comprise a large segment of it, with personal reserves or travel conversion comprising another large segment.

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so who decides ...

the world bank..

the IMF..

some sort of international money exchange?

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Everyone decidesm it's a floating market.

For example, if Brazil decides to dump the dollar and hold their reserves in Euros the dollar's price will go down.

Of course, the US could decide to start buying and try to mitigate it.... etc etc.

It's just supply and demand.

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now why on earth would the US allow it's currency to be sold?

surely it's for internal use only.

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The US can't do anything about it.

Well, actually the US can and does but they can't force people to stop.

For example, the US standing policy is against pegged currencies, preferring instead floating currencies (think free market).

Nations such as Argentina have had pegged currencies, they do this to combat hyperinflation and what that means is that they "peg" their currency to the dollar, making the official exchange rate within their countries fixed.

Argentina was actually considering adopting US currency altogether, but that is something the US was really mad about and we put the screws on.

Ultimately they unpegged and all hell broke loose.

But America doesn't mind if people have reserves in dollars. One of our power staples is our currency and other nations using our currency as a measuring stick is a boon.

Of course we tweak things where we can, having a strong currency is bad for trade deficits for example.

When Japan's currency was devaluating too much we helped prop it up to keep the trade status quo.

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Well that's a great explanation, thanks.

You really know your stuff.

I still can't get my head around all the ramifications...

And all the interconnections.

I'm going to do a bit of research.

thoughts at the moment are in this general area:
1/what about how the US can control gold over the boarders so well...

2/ what about the way ultimately the US must have control over it's money because at the end of the day... money is merely a promise to repay...you just need to say...will only repay within the boarders of our country.

3/when a multinational company gets involved that's really complicated...you have three overlapping circles of control each free and restrained in it's own way by it's motivations and laws.

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Quote:

When Japan's currency was devaluating too much we helped prop it up to keep the trade status quo.

Im not quite sure what you are referring to. Japan needs devaluation, they are an exporting nation after all. Near deflation and a strong Yen is a major problem of Japan.

Argentina really upset IMF they were just wasting their loans. Pegging is good to a degree, but you can easily end up with capital flight and depleated currency reserves.

Quote:

1/what about how the US can control gold over the boarders so well...

Sorry, what do you actually mean?
bank of england is gradually selling off its gold reserves by the way, its more of a commodity these days.

Quote:

2/ what about the way ultimately the US must have control over it's money because at the end of the day... money is merely a promise to repay...you just need to say...will only repay within the boarders of our country.

US is by far the net importer of goods and natural resources, e.g. 20 percent of energy resources produced in the world are consumed by the US. And they pay for that in dollars. So US is not in a position to keep their currency local..

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nexz

this is what I meant about the gold thing..

Gold: Gold coins, medals, and bullion, formerly prohibited, may be brought into the United States. However, under regulations administered by the Office of Foreign Assets Control, such items originating in Afghanistan, Cuba, Iran, Iraq, Libya, Serbia, and Sudan are prohibited entry. Copies of gold coins are prohibited if not properly marked by country of issuance

as for the true way currency trading works...this may take a while to de-construct..

Please hold.

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needsandwants wrote:

thoughts at the moment are in this general area:
1/what about how the US can control gold over the boarders so well...

We don't control gold...

But same principle, sell reserves or add to them.

Quote:

2/ what about the way ultimately the US must have control over it's money because at the end of the day... money is merely a promise to repay...you just need to say...will only repay within the boarders of our country.

We do not operate on the gold standard anymore. Haven't for many years.

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nexz wrote:

Quote:
When Japan's currency was devaluating too much we helped prop it up to keep the trade status quo.

Im not quite sure what you are referring to. Japan needs devaluation, they are an exporting nation after all. Near deflation and a strong Yen is a major problem of Japan.

A strong Yen is Japan's current woe. I was referring to an event in 1998.

See here:

http://news.bbc.co.uk/1/hi/business/the_economy/114766.stm

BBC wrote:

The United States has for the first time sold dollars to strengthen the yen, and the Japanese currency has dramatically strengthened as a result.
The intervention is the latest sign of the Clinton government's nervousness about the Asian crisis.

The administration confirmed the dollar sales in a terse one-sentence statement: "The New York Federal Reserve Bank is operating in the exchange markets on behalf of US monetary authorities."

After the intervention the dollar weakened sharply, dropping to ¥137.80. Earlier in the week the dollar had traded at an eight year high of ¥146.

Traders at major money centre banks in New York said the Fed began buying yen around ¥141.00 and continued to buy at ¥138.00.

The US Treasury Secretary, Robert Rubin, said the action had been taken in co-operation with Japanese authorities, and that the United States stood ready to do more. The joint action had taken the markets by surprise.

Japan's Prime Minister, Ryutaro Hashimoto, expressed "delight" over the American support for the yen, and pledged quick moves to rescue the Japanese economy to avoid harm to other nations. Mr Hashimoto said he and President Bill Clinton had consulted by telephone earlier on Wednesday, and that Japan realized a revival of its economy was "urgently needed."

Quote:

Argentina really upset IMF they were just wasting their loans. Pegging is good to a degree, but you can easily end up with capital flight and depleated currency reserves.

Unpegging is what usually causes the capital flight, but pegging is the root.

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Quote:

Unpegging is what usually causes the capital flight, but pegging is the root.

If you sell your goods and get a lot of pesos, what do you with it, unless you are a real patriot of course? you exchange them for $$ and likely to keep them in the foreign bank, cause why would you trust weak peso or even less argentinian banks. Hence, pegging is good to a degree when economy is on the rise and there is trust amongst the players on the market.

In Russia, they had a capital flight of $10 bil a month during Yeltsins years, Central Bank continuoeslly tried to rescue rouble with dollar interventions to fight hyperinflation, the state oil revenues could've been spent elsewhere.

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Me I would spend those pesos on land get locals to construct a hotel...set up tourist lines to put People on holiday there for a low cost...perhaps start a Tequila farm out back...export that somewhere else..fun fun fun.

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needsandwants

I reckon you either live in europe, us or some other 'warm' place. In countries like Russia or Argentina you would think twice whether to invest back your hard earned cash, its a lot easier to build a hotel in a south of France, less risk less hassle..

tequila farm doesn sound bad though;)

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wasn't the word "Pesos" used ????

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wasn't the word "pegging" used?

when you have a very weak currency,
people given a chance will exchange it to dollars
and if you are a businessman you also would think of investing it somewhere safe.

If you cant exchange your pesos, you will invest it back you have no choice.

Also foreign multinationals if they operate in Argentina have very little need for peso, pegging is good for them so they can get reimbursed and export hard currency out of the country.

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Wag the dog.

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