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