An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
"the desire of investors to hold a piece of the pie of the GVA of that nation. "
Unfortunately until this notion dies we will get nowhere.
There is not really a desire of investors to hold a price of the pie of the GVA, at least not in aggregate. In a country that is setup to be 'export led' by policy there is a desire by producers to sell things abroad. That's the actual driver.
The corollary of that is that if an export led country wants to remain an export led country, it has to have a mechanism for converting the largely useless foreign currency into more useful domestic currency. That's either by turning domestic savings into foreign savings, or by swapping/discounting the foreign scrip.
Neil right with China/Japan at least they change out a lot of the exporters USD balances and then the USD balances show up as "official reserves"...
But what I would take issue with these people in the posts here saying "a nation devalues..." that usually never happens it is the FIRMS that lower their prices for business reasons and THEN this act has follow on effects on the financial characteristics of the banks financing the trade which RESULTS in the exchange rate adjustment as the banks negatively effected by the reduction in the price of the product being financed have to go out on the inter-bank market for additional regulatory balances to make up for the markdown in the asset values underlying their loans... within a system that has effectively FIXED regulatory capital over short periods of time across the entire system...
So if the total system capital is fixed (as deltaT approaches zero) in the denominator of a systemic regulatory ratio, then the numerator (system wide) cannot change either... BUT of course the individual terms comprising the numerator can change on an individual/component basis... so when these terms in the numerator have to adjust due to non-bank firms product pricing decisions in the one currency terms (say Daimler reduces the price of Mercedes C-class in the US in USD terms), it results in perceived changes in forex rates as the banks trade with each other to acquire the necessary balances in the specific currency (US banks financing Mercedes have to go out and acquire additional regulatory USD balances) .... so some of the terms in the numerator increase and some decrease in response...
2 comments:
"the desire of investors to hold a piece of the pie of the GVA of that nation. "
Unfortunately until this notion dies we will get nowhere.
There is not really a desire of investors to hold a price of the pie of the GVA, at least not in aggregate. In a country that is setup to be 'export led' by policy there is a desire by producers to sell things abroad. That's the actual driver.
The corollary of that is that if an export led country wants to remain an export led country, it has to have a mechanism for converting the largely useless foreign currency into more useful domestic currency. That's either by turning domestic savings into foreign savings, or by swapping/discounting the foreign scrip.
Neil right with China/Japan at least they change out a lot of the exporters USD balances and then the USD balances show up as "official reserves"...
But what I would take issue with these people in the posts here saying "a nation devalues..." that usually never happens it is the FIRMS that lower their prices for business reasons and THEN this act has follow on effects on the financial characteristics of the banks financing the trade which RESULTS in the exchange rate adjustment as the banks negatively effected by the reduction in the price of the product being financed have to go out on the inter-bank market for additional regulatory balances to make up for the markdown in the asset values underlying their loans... within a system that has effectively FIXED regulatory capital over short periods of time across the entire system...
So if the total system capital is fixed (as deltaT approaches zero) in the denominator of a systemic regulatory ratio, then the numerator (system wide) cannot change either... BUT of course the individual terms comprising the numerator can change on an individual/component basis... so when these terms in the numerator have to adjust due to non-bank firms product pricing decisions in the one currency terms (say Daimler reduces the price of Mercedes C-class in the US in USD terms), it results in perceived changes in forex rates as the banks trade with each other to acquire the necessary balances in the specific currency (US banks financing Mercedes have to go out and acquire additional regulatory USD balances) .... so some of the terms in the numerator increase and some decrease in response...
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