Entangled Currencies: US, Asia, and Europe

This article explained in crispy terms how the downward spin of US dollars caused changes in Asia and frustration in Europe. The interdependencies are fascinating.

The fall of the dollar against the euro has frustrated exporters and political leaders in Europe, and there is little hope that they can reverse the policies of either the Bush administration, which seems content to let the market push the dollar downward, or Asia’s central banks, which have intervened heavily to curb the rise of their currencies against the dollar.

From today’s New York Times:As Group of 7 gathers, Europe Looks Like and Outsider, by MARK LANDLER¡£

2 thoughts on “Entangled Currencies: US, Asia, and Europe

  1. Currency exchange rates are not self-regulating. They have a ‘dirty float’ – some free-market direction but largely set by central banks which are supposed to be at arms length from the government (the voters).

    In the past, countries tried to create stable exchange rates through something called the gold standard. That system collapsed.

    In my unqualified opinion, our current system is really not that much different. Instead of a gold standard we have an energetic standard. Economic activity is measured in [transactions x money per transaction]. Economic growth = more transactions at same money per transaction, inflation = same number of transactions at more money per transaction. More transactions (all other things being equal) physically requires more energy. To increase the number of transactions either you need more energy or need to conduct the transaction more efficiently. Innovation is typically used as a synonym for doing things more efficiently. The bet that has been made by our masters is that innovation will continue indefinitely and will always make up for any limitation in energy requirements.

    When innovation ceases to keep pace with energy shortages, we will find our system reacts exactly the same way as in the past. A limited supply of gold (required for stable exchange rates) meant that the capitalist machine ceased to function. Capitalism requires growth (ever borrowed or lent money and expected to receive or pay out interest?). A fixed supply, or not-growing-fast-enough supply, of gold means the system can’t function as designed).

  2. Interesting lessons on banking!
    I have to admit I’m pretty lost half way through your post. What caught my eyes in the NYT article was the fact that Asia actually pushed down their own currency to minimize the impact of devalueable of US $, while EU couldn’t do the same. Because it seems a very man-made decision rather than a free-market decision. It struck me as an East versus West philosophical (practical versus ideological) difference.

    After rereading your post the third time and noticed my brain drifted away in the middle for the third time, i’m convinced that I’m never going to be a banker. 😀 But thank you for the post anyways. I’m sure some of the readers are more financial minded than me!.

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