pacomartin
pacomartin
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June 3rd, 2010 at 4:52:02 PM permalink
Quote: ahiromu

Hungarian Forint Drops Most in World as Fidesz ‘Spooks’ Markets

(Summed up)

The Hungarian currency is doing bad against the fricken Euro, which is having a record-bad year. The "conservatives" came in first, by far, with a 68% lead. From the looks of it they're the most fiscally conservative party, the politics in Hungary are very odd and can't be well defined in a look at their major parties and current MP numbers. Euro politics are really interesting, before the last election in Germany the two major parties, CDU and SDP (by name, conservative an liberal respectively) were in a coalition.



The above comment really shows the hazards of having a small currency which is affected by big markets. I assume that everyone knows what happened to Icelandic Krona when it dropped 60% against the Euro before recovery.

About 10 years Senator Mack (now retired) from Florida had a background in banking. He made a proposal which I will present in simplified form. Any country in the Western Hemisphere who wants to give up their currency can ask the United States to help. We will give them an equivalent amount in US currency less some handling fees. If they follow certain restrictions (like not sneaking their own currency back into circulation, or doing vast money laundering schemes for drug money), we will give them money every year to make up for their loss in seignorage. Seignorage is an old term that accounts for the benefit that a government gets from printing their own currency. It comes from the times when the seignor would make the coins a little smaller than their true weight in precious metal (usually silver) so that he would get something from the currency.

His reasoning was that in exchange for giving away pieces of paper, the USA would benefit from having stable neighbors that could engage in international trade. Around the time that he was writing his proposal millions of young Ecuadorians were hitting the road to USA and Europe as their country was being devastated by a bad El nino. Ecuador was encouraged by the proposal, but when it didn't go through they unilaterally dumped their own currency for the US dollar. But by this point the currency was so devastated that the biggest banknote in the country was worth US$2. The US sent a ship with all the currency that the country would need, but Ecuador does make their own coins as they are too heavy to ship.

Also around the same time Argentina was considering switching to the US dollar. Almost a third of the banknotes in circulation in the country were US banknotes anyway.

Shortly afterward El Salvador switched to the US currency. The principal source of income in the country was money being sent home from people with jobs in the USA. It was actually costing the government more to maintain a separate currency than to switch to US dollars.

The Senate committee wouldn't even put it up for discussion on the floor. The gist of their refusal was that the political dangers were so huge that they outweighed any possible benefits to the USA. I do agree that their are political dangers since it would put something in the hands of people everyday that is American. When things go wrong with the economy they could blame dollarization. Possibly terrorist groups would have a good recruiting tool. Obviously decisions made by the Federal Reserve do not take into account any possible affect on Ecuador. It is unlikely that they would take into account the affect on Brazil.

The currencies that are all fixed rates against the US dollar (Bermuda, Bahamas, Belize, Barbados, Aruba and East Caribbean Dollar) are all backed by US treasury bonds or other conservative investments. They are not independent currencies, but the banknotes have a nationalistic look instead of US presidents. Panama has used US currency since the creation of the country.

{b]I think it was a good idea? Does anyone agree?

Particularly for central America and Columbia and the Caribbean. The country are hopelessly overshadowed by the American economy anyway. It would allow them to participate in some of the benefits even if not everyone sees it that way.

Senator Mack dollarization plan Technical analysis of Mack plan is not political but based on economic theory.
AZDuffman
AZDuffman
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June 3rd, 2010 at 5:12:47 PM permalink
Quote: pacomartin



The currencies that are all fixed rates against the US dollar (Bermuda, Bahamas, Belize, Barbados, Aruba and East Caribbean Dollar) are all backed by US treasury bonds or other conservative investments. They are not independent currencies, but the banknotes have a nationalistic look instead of US presidents. Panama has used US currency since the creation of the country.

{b]I think it was a good idea? Does anyone agree?

Particularly for central America and Columbia and the Caribbean. The country are hopelessly overshadowed by the American economy anyway. It would allow them to participate in some of the benefits even if not everyone sees it that way.

Senator Mack dollarization plan Technical analysis of Mack plan is not political but based on economic theory.



There are positives and negatives. Argentina did have a dollar-backed local currency for some time. Eventually their balance of trade made it untennable. Therein lies the problem to me. First look at California. It has a major budget deficit it cannot fix. So suppose Brazil dollarized and had to default. It would be Greece on steroids.

Second, look at the EU. The PIGS cannot keep up with the rest of the EU and it will take trillions to fix it, if it can be at all. The EU is one continent, this idea would be for a hemisphere. A slow economy in Brazil might require a loose monetary policy, but high inflation in the USA might mean it needs to tighten there, Brazil would be stuck.

So my verdict is dollarization is fine for smaller countries, bad for larger ones.
Tolerance is the virtue of believing in nothing
ahiromu
ahiromu
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June 3rd, 2010 at 5:25:34 PM permalink
First of all, I think it's good to note that both Argentina and Iceland went bankrupt. Countries -are not- too big to fail.

Secondly, I think it's ok to let other countries use our currency as long as they understand the risks. If we incur a debt, which is our legal right and in some cases is a good option, they must accept that their dollar will be worth less without getting anything for it. Most of these countries tried to "print their way" out of debt, technically speaking "monetize" it. For a good portion of time these countries were able to live significantly beyond their means through inflation, or what Reagan liked to call the "invisible tax". They would in essence be forced to work like our individual states do, balancing their budget every year. So as long as they accept this concept I do not care... but I don't want to be on the line for another country bitching to us about monetizing some of our debt when it is our best option. In fact, if the dollar was adopted by all of North/South America we could cheat other countries by monetizing our debt and it wouldn't affect us like it should.
Its - Possessive; It's - "It is" / "It has"; There - Location; Their - Possessive; They're - "They are"
ahiromu
ahiromu
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June 3rd, 2010 at 5:33:00 PM permalink
Also, somebody might know more about this, but I have heard rumors that George Soros has done legally-questionable currency trading. On wiki he is listed as many thing such as a philanthropist and political activist (he's a hard-left socialist) and it also says that he's a Hungarian-American currency speculator.

http://finance.yahoo.com/q/bc?s=USDHUF=X&t=5y&l=off&z=m&q=l&c=

If he got in during mid-08, he's making a good chunk of change.
Its - Possessive; It's - "It is" / "It has"; There - Location; Their - Possessive; They're - "They are"
pacomartin
pacomartin
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June 3rd, 2010 at 7:11:57 PM permalink
Quote: AZDuffman


There are positives and negatives. Argentina did have a dollar-backed local currency for some time. Eventually their balance of trade made it untennable. Therein lies the problem to me. First look at California. It has a major budget deficit it cannot fix. So suppose Brazil dollarized and had to default. It would be Greece on steroids.

Second, look at the EU. The PIGS cannot keep up with the rest of the EU and it will take trillions to fix it, if it can be at all. The EU is one continent, this idea would be for a hemisphere. A slow economy in Brazil might require a loose monetary policy, but high inflation in the USA might mean it needs to tighten there, Brazil would be stuck.

So my verdict is dollarization is fine for smaller countries, bad for larger ones.



Argentina had a currency where the exchange rate was fixed 1:1 with the US dollar. It was not dollar-backed. It debated about dollarizing, but rejected the idea. When they removed the fix, it dropped to roughly 4 peso to the dollar today.

I agree that the three major currencies in western hemisphere probably would not switch (Canada, Mexico, Brazil). Under the Mack plan the decision would be purely national. They would prefer to control their own monetary policy.

Unlike the EU where the PIGS could destabilize the currency, it is unlikely that any small country in Western Hemisphere would have any effect on the dollar. For one thing they are not part of the federal reserve board and have no say in monetary policy.


When countries run up too much debt, historically there are four ways out.
1) Devalue Currency
2) Lower Interest Rates
3) Print Money
4) Buy Up Debt

Now the PIGS can't do any of those things, and neither will a small western hemisphere country that adopts the dollar. The problem from the perspective of the small WH country is that the USA is free to do all of these things regardless of how it affects there country.

Proponents of dollarization say that the small countries are affected by the US actions regardless, so they may as well get some benefit of using the global currency with any fees. Other places like the EU would feel better about investing in Central America if they are using the American currency.
AZDuffman
AZDuffman
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June 4th, 2010 at 4:51:53 AM permalink
Quote: pacomartin



Proponents of dollarization say that the small countries are affected by the US actions regardless, so they may as well get some benefit of using the global currency with any fees. Other places like the EU would feel better about investing in Central America if they are using the American currency.



This is why I like the idea of dollar-backed for lots of the small countries. They get the same benefit; local pride is allowed to a greater extent; and they get a small benefit from currency-collecting tourists buying in but not out. (Kind of like casino chip collecting?) Downside is they need to watch for counterfitters, which may or may not be worth the bother for the criminals--how much cash are you going to introduce then exchange in The Bahamas?
Tolerance is the virtue of believing in nothing
AZDuffman
AZDuffman
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June 4th, 2010 at 4:51:54 AM permalink
Quote: pacomartin



Proponents of dollarization say that the small countries are affected by the US actions regardless, so they may as well get some benefit of using the global currency with any fees. Other places like the EU would feel better about investing in Central America if they are using the American currency.



This is why I like the idea of dollar-backed for lots of the small countries. They get the same benefit; local pride is allowed to a greater extent; and they get a small benefit from currency-collecting tourists buying in but not out. (Kind of like casino chip collecting?) Downside is they need to watch for counterfitters, which may or may not be worth the bother for the criminals--how much cash are you going to introduce then exchange in The Bahamas?
Tolerance is the virtue of believing in nothing
AZDuffman
AZDuffman
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June 4th, 2010 at 4:51:54 AM permalink
Quote: pacomartin



Proponents of dollarization say that the small countries are affected by the US actions regardless, so they may as well get some benefit of using the global currency with any fees. Other places like the EU would feel better about investing in Central America if they are using the American currency.



This is why I like the idea of dollar-backed for lots of the small countries. They get the same benefit; local pride is allowed to a greater extent; and they get a small benefit from currency-collecting tourists buying in but not out. (Kind of like casino chip collecting?) Downside is they need to watch for counterfitters, which may or may not be worth the bother for the criminals--how much cash are you going to introduce then exchange in The Bahamas?
Tolerance is the virtue of believing in nothing
pacomartin
pacomartin
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June 4th, 2010 at 6:25:09 AM permalink
Quote: AZDuffman

and they get a small benefit from currency-collecting tourists buying in but not out. (Kind of like casino chip collecting?) Downside is they need to watch for counterfitters, which may or may not be worth the bother for the criminals--how much cash are you going to introduce then exchange in The Bahamas?



Bahamas has $174 million in circulation (roughly $500 per capita). They do have a $100 banknote (not sure how many but I would guess not more than $20 million worth. The $3 banknote was probably an inspiration. What tourist could resist taking home a $3 banknote?

Iceland circulates about 500 euros worth of notes per capita. But since the crash of the currency a year and half ago, they now circulate about half their notes in the largest denomination 5000 krone (which are worth 83% of the value of the total number of banknotes). Their biggest banknote is worth 31.5 euros.

Bank of England circulates about £1000 GBP worth of notes and coins per person. They circulate surprisingly few £50 notes (less than 3 per capita). The British have been surprisingly cautious about large banknotes since the counterfeiting scare in WWII made them withdraw all of their banknotes above 5 pounds. I suspect that it would be difficult to circulate a counterfeit £50 since they are not very common outside of London. The £20 note is circulating at about 23 notes per person and accounts for over half the value of the banknotes.

The Bank of England is circulating over £130 in coins per person (almost the same as the £50 banknotes).

Nareed
Nareed
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June 4th, 2010 at 8:58:31 AM permalink
I favor abandoning all paper currency in favor of precious metals, and getting government out of the money supply.
Donald Trump is a fucking criminal

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