textfiles/politics/SPUNK/sp001132.txt

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2021-04-15 11:31:59 -07:00
** Stripping the mystery from the Money markets **
MOST PEOPLE ONLY worry about currency exchange rates
when they're changing money for a holiday, but over the
last few years, they have become increasingly hard to
ignore. Government ministers appear on TV to inform us
that interest rates will have to go up or down, or
reassure us that, having spent hundreds of millions of
pounds, our standing in the ERM is now safe. What are
they talking about?
Part of the move towards European integration,
indeed, one of the main reasons for this move, is making
sure that the value of all the European currencies stays
at more or less the same level. If the pound today is
worth 5 francs, 100 pesetas, or 1,000 lira, then it
should always be worth about 5 francs, 100 pesetas, or
1,000 lira. This is because, if a business is exporting
stuff to Germany, it wants to be sure that the 10,000
marks it gets paid is worth as much as when the price
was agreed, otherwise it could end up making huge
losses.
Speculators
The problem is that the value of a currency depends
ultimately on how much other people are willing to pay
for it, and that, in turn depends on millions of other
things, like the general strength of the economy, that
no-one can really control. When, as happened with
sterling, speculators (basically the big banks and
investment companies) think that the price is too high,
they start selling the currency - forcing its price
down. To try to keep the price up, governments will
increase interest rates, so investors will save their
money in that country, or buy as much of the currency as
they can.
Naturally, we're the ones who have to pay for all
of this. If interest rates go up because of speculators
attacking a currency, our mortgages and bank loans
become more expensive. When governments use their
reserves to buy up currency, they then have to spend the
next few years building their reserves back up, which
means less public spending and more taxes. And no
matter how much of our money the government spends, they
still have little chance of fixing the value of the
currency.
No-one's in charge
The problem isn't simply one of having the wrong
government in power - no matter how 'socialist' the
ruling party, they will still be faced with the same
situation. If a price for the currency is not fixed,
then companies will go out of business, with the
attendant loss of jobs, through losses incurred as their
payments are changed from one currency to another. (Not
to mention the complications in terms of EU membership
raised by dropping out of the ERM) On the other hand,
because it is not the only player in this game, the
state simply isn't in a position to set the price of its
money.
Just as manufacturers try to produce the most
profitable goods, investment companies and banks are
drawn to the most profitable markets. They speculate on
currencies because they are trying to make a profit for
their shareholders and investors, even if these are the
same people who end up losing if a currency is devalued.
Whatever happens, they are in the position of enforcers
for the 'iron law of the market', and until that 'law'
is challenged, we're going to keep going in the same old
circles. Capitalism, by its nature, is chaotic. A
rational economy requires a new system - anarchism.
Ray Cunningham