Zev,
With respect, I have to say I believe there is a subltle but important
difference between a pegged currency and employing a currency-board.
I've looked for a definition of a 'currency-board' but none was found.
However in Judy Shelton's WSJ article in 20 Aug p.A14 she offerred this
interpretation....which I believe is in use by H.K. and Argentina.
"Under a currency-board arrangement, governments lose the ability to
excersise discretionary monetary policy....The exchange rate between
the national money and the reserve of foreign currency does not gyrate
according to the fickle sentiments of investors or jawboning efforts
by government officials, but is guaranteed by law....The hallmark of
a currency-board is that it works automatically..."
It essentially deprives currency traders of an open playground. In the
article she quots Soros as saying, "...the only way to end the
destablizing impact of currency speculation is to take the profit out
of it." Hong Kong has also stated on the same page, that it intervened
in local stock and futures markets to take the profit away from direct
currency manipulation by the hedge-fund traders.[Mr. Yam's article]
A pegged currency is not a binding legal system, it can be altered
easily by the jawboning of polticians influence...as what just recently
occurred in Russia and by hedge-fund traders on the open market.
Pegged currencies are essentially publically stated bands of exchange
rates that are not fixed by law. This makes them easily manipulated by
any group for personal interests.
I believe it requires a significant legislative act to cancel the
currency-board authority. However, the basis of confidence remains
on the ability of the country to maintain an orderly economic system,
such as debt ratios to GDP...etc. Atleast in Russia's case the currency
board would give some inherant structure to the international money
and reduce speculation. It is not a cure for internal corruption.
Other arguments surround the use of baskets of commodities and/or gold
to anchor the boards currency rather then a single currency that floats.
I do not believe H.K. can easily adjust this currency-board as you
have suggested. It would, I believe require a full legislative vote
that would not be easily won after many years of success as the basis
for "the freest economy in the world."
Chip |
