Ending a national currency and an exchange rate means that an exchange-rate crisis is not possible.
"When you are creating a currency whose purpose is to be unregulated and then that currency gains value and its exchange rate with the dollar or the pound sterling increases, then clearly this is going attract all sorts of people who want to launder their illicitly earned money, " he says.
The Minister instructed the teller that there was to be a new and more favorable currency exchange rate for the day and the financial instrument was to be converted at this new rate.
Heavy subsidies to energy and water prices have been reduced and, last October, the government finally made its currency convertible and unified the exchange rate.
He announced a series of currency controls and fixed the exchange rate against the dollar (see article).
In spite of what they believe is an obvious connection between the currency exchange rate and the trade deficit with China, the empirical evidence does not support such a connection.
But funds hope it marks a big change when concerted policy easing by some central banks, including the European Central Bank and Federal Reserve, squashed the gaps between different countries' interest rates, depressing currency-trading volumes and exchange-rate shifts.
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Another was to use foreign currency: the bank could lend, or accept a bill of exchange, in one currency and collect its debt in another, building a hidden rate of interest into the exchange rate.
"Every airline is a country that gets to establish the value of their currency, and some provide a better rate of exchange than others, " said Mr. Sorensen, whose firm has been tracking airline seat availability for the past three years.
Ecuador dollarized its currency, pegging the exchange rate of its peso to the dollar, and Panama has used the dollar alongside its own currency for decades.
In recent days, Iceland has taken over the country's second-biggest bank, fixed the exchange rate of its plummeting currency, and asked Russia for a euro4 billion loan as it scrambled to stop the collapse of its economy.
She also introduced a floating exchange rate regime and lifted controls on currency trading.
Mundell is proposing, in effect, a de facto super-regional currency area by managing the exchange rate between the dollar and the euro through a process of central bank coordination.
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The government has abolished jail terms for those caught dealing in foreign currency, offered extra incentives for private investment and brought the official exchange rate closer to the black-market one.
On Thursday, Iran's central bank devalued the rial by 8% against the dollar and ordered all currency-exchange shops to adhere to the official rate or be shut down, according to Iran's official media.
The key issue is that the new trade has created a wedge between the government-controlled, onshore exchange rate (CNY) and the offshore currency as it trades in Hong Kong, which is known as CNH.
An optimal currency area would require convergence on monetary, fiscal, exchange rate, and political policies, which in turn would lead to productivity and growth rate convergence, explained Roubini.
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If, as a result of capital inflows, there is an excess supply of foreign currency, the central bank must buy it and sell yuan to keep the exchange rate stable.
By devaluing a currency in a floating exchange rate environment, the result is that trade booms and foreign reserves balloon.
Now, dollars sell on the black market at three times the official exchange rate and Maduro has had to devalue Venezuela's currency, the bolivar, twice this year.
More broadly, in the United States, for example, the dollar made artificially expensive by capital inflows related in part to its reserve currency status has prevented the exchange rate adjustment needed to balance our trade in goods and services.
Third, there is an exchange-rate effect: a rise in interest rates pushes up the currency and so squeezes exports.
Like any fixed exchange-rate system, a currency board offers the prospect of a stable exchange rate, which can promote both trade and investment.
Only then should it consider whether to allow itself more flexibility by, say, linking its exchange rate to a broader basket of currencies and thus abandoning the precious currency board.
The step faces several pitfalls, though, and could have unintended consequences, including an unstable exchange rate or a strengthening currency that hobbles the country's nascent export sector just as the country is re-entering the global economy.
Often, an unequal flow of currency reduces the supply of money in the nation and can lead to an increase in the exchange rate relative to the dollar, leading to inflation and, in a worst case, labor market pressures leading to unemployment.
This exchange rate liberalization has continued and while the ruble is not a freely floating currency, it is much closer to being one that it was in the past.
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