Friday 24 June 2011

Currency Pegs








5 comments:

Blondie said...

IMO, during the BW Standard gold still figured- as the anchor for the dollar.

Post 1971 gold no longer figures.

Freegold: gold floats, currencies find relative levels below surface, with gold as benchmark. More precisely, each currency creates its own pool for gold to float upon, with the smaller (relatively) pools being the stronger currencies, in that they buy more gold (are stronger in gold).

DP said...

Is it possible for a currency to float ABOVE gold? In my view, albeit perhaps not indefinitely, it's a YES.

I can see the euro at times holding value even better than gold.

DP said...

... in order to stay in line with the single mandate: consumer price stability.

I can't see it happening often, but it's a possibility.

Blondie said...

Technically gold floats on the currency, regardless of the volume of said currency, which was why I suggested currencies have individual pools to float the benchmark.

Maybe a case could be made that a currency could float above gold, but currencies are not compared to gold, but rather valued by it. It does not create an intuitively accurate image for me.

It seems the visual analogy used successfully in the preceding slides does not carry over so well into the Freegold one?

I am interested in a reader gaining an intuitively understood model rather than a technically understood one, but this is just my opinion that an intuitive understanding is (in this case at least) of more practical value than a technical one. 

DP said...

"Technically gold floats on the currency"

An interesting point, and one which perhaps stands the images in the slides on its head. I'd need to mull that over to come up with a better image to convey it, but unfortunately right now I have a couple of problems on my hands and a break coming up imminently. If you think of a good alternative concept, be sure to let me know!  :-)

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