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Re: [burashid] Why is 1 yen worth so little?
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Can't Post
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I'll answer half of your question.
If country A pegs to a vehicle currency from an economy larger than itself (let's say a small Asian country against the USD), then it doesn't want to peg itself 1 to 1.
Why? If you peg 1 to 1 with a crappy little economy then you are bound to LOOSE purchasing power overnight because foreign investors get out of your crappy little economy. Any instability (which fluctuates more in your crappy little economy) will be faced with depreciations of your currency. So you keep loosing money faster than you really want. That means your exports now become cheaper but you can't afford to buy anything from imports cause your dollar is worthy junk! That's a reason why you don't want to start off at par.
The whole FOREX market is constantly pushing money here and there based on economic security and return. If you don't really have an economy that is equal (all things being equal) to the country you peg to then you're in for a RIDE.
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econmod
Broker
/ Moderator
Jun 7, 2007, 4:57 PM
Post #2 of 2
(498 views)
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