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Strategies & Market Trends : Currencies and the Global Capital Markets

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To: Step1 who wrote (445)	8/21/1998 11:42:00 AM
From: Robert Douglas	Read Replies (1) of 3536

There is often a reference made to "anchoring" a currency to make it more stable. WHile i think i understand how it works with gold, what would it be in the case of " a basket of commodities"? What kind of commodities are people talking about here? Metals? I am probably not the best person to ask this to. I think these types of proposals are horribly ignorant. Am I being too harsh? As I understand it, if you were to come up with a basket of commodities to tie your currency to it would work differently than the old gold standard where you could exchange a dollar for a fixed quantity of gold. In this instance if the basket of commodities denominated in your currency started to rise the central bank would step in restrict the supply of money in order to combat price inflation. If the basket of commodities fell in price then the central bank would conduct stimulative monetary policy. What a terrible way to conduct monetary policy! The goal is to have stable prices and a stable currency. The result is to put your monetary policy at the whims of the weather, deposit discoveries and a host of unrelated factors. -Robert

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