Mike,
<<Why don't all countries just do the float?>>
<<the main problem is, nobody will take a Zloty unless you tell them what it is in something they understand. By pegging to something reasonably solid, i.e., gold, the dollar, the yen, the Swiss franc, the D-mark, the Pound Sterling, you gain instant respect. Nobody would buy Argentine money until they pegged to the buck. Ditto for most other countries.>>
What price "respect"? It sounds artificial. There is nothing magical about $7.8HK=$1US. Why try to maintain this artificial equilibrium by boosting HK interest rates, with all the problems this causes the economy? Why not just let the supply and demand for $HK determine its own level? Presumably the $HK would then weaken, causing its exports to be priced more competitively, which would gradually improve its export-oriented economy. No?
What does it mean that Thailand decided to float the baht? This is not the same as a devaluation, is it? Does it mean that there is no longer an "official price" for the Thai baht and that exports and imports are settled every day at a different price? What's wrong with that?
I thought price controls always distort the economy and result in misallocations of resources. Why is it any different for currencies? What other countries peg their currencies to the $US?
SC |
