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5 comments:
Hey Mike, what's the MMT take on India? A currency crisis usually involves foreign currency debt but India borrows in its own currency as far as I know.
Mr. Mosler blamed the 1997 Asian Crisis on the US Budget surplus which caused a US dollar short squeeze in Asian markets. Could the recent austerity in the US (i.e. the rapid shrinking of the US govt deficit) be causing another currency crisis in emerging markets?
Yeah, it's the classic wrong response. Their central bank is raising rates to "defend" the rupee even though rate increases are functionally the same thing as a fiscal expansion (net rupee creation), so the rupee keeps going down and they don't get it. And why are they trying to defend some arbitrary level of their currency's foreign exchange value anyway when they are on a floating FX non-convertiblity regime? They went on that, ostensibly, to free their monetary and fiscal policy from the constraints of convertibility! It's like they're trying to defend their currency on the false belief that they are dependent on outside "funding" from from investors. Crazy!
One problem is that India is one a sort of gold standard because physical gold is so popular. Indians buy a lot of imported gold with rupees, which has the government upset since it is de facto convertibility. High real interest rates have discouraged gold purchases historically. Could be part of cb thinking?
And the gold buying gives them a big trade deficit.
Good points about gold AND the trade deficit. I understand India has a huge current account deficit which until recently has been sustained by large capital inflows. However, India is now suffering capital outflows so I guess something has to give.
I've also heard that, although the Indian govt doesn't borrow in foreign currency, the private sector does. Trying to repay those loans now with depreciated rupees is a tough task.
Anyway, I think what's going on in India and elsewhere Is being undereported. We may soon have another 1997 situation on our hands.
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