...BOFIT Discussion Papers 19 • 2011 Zhichao Zhang, Nan Shi and Xiaoli Zhang China’s new exchange rate regime, optimal basket currency and currency diversification Bank of Finland, BOFIT Institute for Economies in Transition BOFIT Discussion Papers Editor-in-Chief Laura Solanko BOFIT Discussion Papers 19/2011 23.7.2011 Zhichao Zhang, Nan Shi and Xiaoli Zhang: China’s new exchange rate regime, optimal basket currency and currency diversification ISBN 978-952- 462-714-6 ISSN 1456-5889 (online) This paper can be downloaded without charge from http://www.bof.fi/bofit Suomen Pankki Helsinki 2011 BOFIT- Institute for Economies in Transition Bank of Finland BOFIT Discussion Papers 19/2011 Contents Abstract ................................................................................................................................................ 3 Tiivistelmä ........................................................................................................................................... 4 1 2 Introduction ................................................................................................................................ 5 Theoretical model ..................................................................................................................... 11 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 3 Policy goal .................................................................................................................... 12 Trade...
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...unforeseen changes in every walk of life, thereby presenting a scenario of chaotic and bizarre changes. Changes in different sectors of society ranging from economy, society, politics, family and culture are so multi-directional that at the surface level, it becomes very difficult to decipher a meaningful and coherent picture from this jungle of changes. Sometimes this scenario leads one to perceive World as a dehumanizing society. But such despair is unwarranted, for it is so more because of its lack of proper management and proper knowledge about it. In fact the present day post-industrial civilization of the world calls for a drastic paradigm-shift and a new insight to bring out a meaningful and articulate picture of today’s World. The present paper is an effort in this direction. Most people think of a cashless society as something that is way off in the distant future. Unfortunately, that is simply not the case. The truth is that a cashless society is much closer than most people would ever dare to imagine. To a large degree, the transition to a cashless society is being done voluntarily. Today, only 7 per cent of all transactions in the United States are done with cash, and most of those transactions involve very small amounts of money. Just think about it for a moment. Where do you still use cash these days? If you buy a burger or if you purchase something at a flea market you will still use cash, but for any mid-size or large transaction the vast majority of people out there...
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...Hard and Soft Currencies Renita McBath MGT/448 University of Phoenix December 1, 2011 Professor David Grier Global Financing and Exchange Rate Mechanisms of Hard and Soft Currencies Trading, bartering, buying, and selling are known as the act doing business. The action of doing business has been a way of life for human beings for Centuries. At some point in our history the difficulty of doing business equally became a challenge. For instance, one person would like to trade a jar of jelly to another person that owns cows. The trade is off balance because of the value of each item. The difficulty arose when trying to access a credit. At this point, currency was born. In the beginning, currency was established by villagers in the form of stones, paper, linen, and other countable items. Nowadays humans have evolved currency into unique metal and paper items that have unique values. Currently these uniquely valuable currencies are referred to as hard and soft. Further research will reveal an analysis of the use of the currencies in global financing operations as well as describing the importance of managing risks that may arise. Hard Currency Hard currency is a status associated with the material, paper, and coins that are circulated within a country and globally in an effort to buy and sell goods. Currently, hard currency is the most traded currency. Countries that acquire this currency status attain...
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...1. Explain why another country would abandon its own currency and use the U.S. dollar as its official currency instead. Explain why such a policy will not work in the long run. 5 points Other countries abandon their own currencies in order to protect themselves from possible devaluation and inflation as well as reduce a number of risks they might have when it comes to foreign investments. Thus, by abandoning their own currency and using the U.S. dollar they are able to provide a more stable and secure economic and investment climate for their country. Also, by doing this, it helps that country's economic climate become more credible and it helps to encourage both local and foreign investors to invest money into that country and their capital market again 2. According to the text, freely floating exchange rate policy means that a country allows market forces to determine the value of its currency. I believe that this policy exist only on paper. Why do you think this is the case? 5 points. I think this is the case too because in some instances, if a currency value moves in any one direction at a rapid and continuous rate, governments who are represented by their central banks are able to and will intervene by buying and selling its own currency reserves in the foreign-exchange market in order to stabilize the local currency. Thus, in reality this policy really only exists on paper because central banks slightly still have the ability to intervene in the foreign exchange...
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...No. ID -21 (revised) OFFICE OF INDUSTRIES WORKING PAPER U.S. INTERNATIONAL TRADE COMMISSION How Do Exchange Rates Affect Import Prices? Recent Economic Literature and Data Analysis Cathy L. Jabara Office of Industries U.S. International Trade Commission Revised, October 2009 Cathy Jabara is a Senior Economist with the Office of Industries of the U.S. International Trade Commission. Office of Industries working papers are the result of the ongoing professional research of USITC Staff and are solely meant to represent the opinions and professional research of individual authors. These papers are not meant to represent in any way the views of the U.S. International Trade Commission or any of its individual Commissioners. Working papers are circulated to promote the active exchange of ideas between USITC Staff and recognized experts outside the USITC, and to promote professional development of Office staff by encouraging outside professional critique of staff research. This paper is a revised version of Working Paper No. 21 dated May 2009. The paper has been updated to include 4 lags in the exchange rate estimation, instead of 3, and a new equation for Latin America is included. JEL codes: F10, F12 Key words: Exchange rates, pass-through, U.S. imports Address correspondence to: Office of Industries U.S. International Trade Commission Washington, DC 20436 How Do Exchange Rates Affect Import Prices? Recent Economic Literature and Data Analysis Cathy L. Jabara U...
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...Foreign Currency & The Economy Author: Ashish Ghangrekar Abstract: This paper attempts to discuss about the relation between Foreign Currency & the Economy. The paper develops the correlation between foreign currency & the economy. It further goes on to discuss the various parameters that affect this correlation. Finally, a few hypotheses drawn from the discussion are presented at the end of the paper. Introduction: Foreign Exchange & foreign currency is the elastic link between various independent political states. The Central Bank of a country frames the monetary policy to maintain a desirable Foreign exchange rate & regulate the flow of foreign currency in an economy. Now let us understand the correlation & interplay between foreign currency & the various economic parameters. In a floating regime of exchange rates, the interest rates in the country are adjusted so as to vary its real exchange rates & also as a measure to control inflation. Therefore a developing capitalist country will have its Central Bank adopt the policy of keeping its interest rate as low as possible. This will enable the entrepreneurs & the various economic actors to obtain capital at a cheaper rate. It will also help to maintain a low real exchange rate & hence boost domestic exports. Growing exports will see a positive trade balance or a Current Account Surplus. With a current account surplus the country can make strategic investments in the foreign markets or acquire factories. This will result...
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...Introduction “You might have noticed that it’s pretty hard to find any cash printed much earlier than the 1990s in circulation.” (Indiviglio) Money is always being created and destroyed, whether it is being physically printed or transferred electronically from the Federal Reserve. Let’s first talk about the history of the United States currency. The original currency of the United States was produced in 1690 and was able to be converted directly to gold or silver. Later, the Continental Congress of the United States chose the dollar over other suggested types of currency and this selection was formalized in the Coinage Act of 1792. The first dollar was issued on September 8, 1789. The United States banknotes are printed by the Bureau of Engraving and Printing, and the United States coins are produced by the United States Mint. This currency was guaranteed with gold and silver until 1861. In 1861, banknotes were introduced to help finance the Civil War and the first real dollar note was created by the Federal Reserve Act of 1913. “Since 1971, dollar notes have been the only form of money in the United States. With currency coins having no gold or silver backing, US dollars are to be backed by the “full faith and credit” of the US government.” (United States Dollar) One interesting fact is that the largest bill ever printed was worth $100,000. This bill was never circulated, but was used during transactions with the Federal Reserve Bank. It was printed between December...
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...BITCOINS: A VIRTUAL CURRENCY Submitted to- Professor Dilip Thosar Submitted by- Chidansh Choudhary Rashi Taneja Rashmi Khinvasara Ridhima Agarwal Sahitya Kalidindi Tejal Bhandari Date of submission: 24th December ‘13 EXECUTIVE SUMMARY: Virtual currencies are increasingly becoming a part of not only the virtual world but also in the real world. There are various problems associated with virtual currencies. Due to its similar nature to real currency, a lot of questions have risen regarding its acceptance among the people in the market, and the reliability factor. In the following paper, we have discussed the different types of virtual currencies based on their exchange factor. Bitcoins, a type 3 virtual currency is one of the most popular crypto currencies. We have discussed the characteristics and the process of transacting Bitcoins in detail, emphasizing on the pros and cons of its usage. We have also compared it with the ‘fiat’ money and mentioned its legal aspects. In the end we have mentioned a few areas for further research in relation to Bitcoins. TABLE OF CONTENTS: Sr no. | Content | Page no. | 1.2.3.4.5.6.7.8.9.10. 11. | IntroductionTypes of virtual currenciesIntroduction...
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...Assignment Currency Devaluation Introduction Devaluation refers to a decrease in a currency's value. A currency devalues when its value declines in relation to one or more other currencies. It affects the demand for exports and imports. Currency devaluation is evaluated in terms of the foreign exchange rate. Exchange rate is the value between two currencies shows how much one currency is worth in terms of other currency. The depth and intensity of exchange rate volatility and its impact on the volume of international trade was recognized during 1970s when the world economy shifted from fixed exchange rate to free floating exchange rate. If the exchange rate volatility is higher, then it will generate uncertainty of the future profit from export trade. In this assignment we will discuss on such issues like exchange rate volatility I addition to currency devaluation and its impact on the volume of international trade of developing country focusing Bangladesh. This assignment is based on the exchange rate and its volatility in addition to devaluation that affect on the on international trade of Bangladesh. The concept of the study is taken from the academic activity of ECN-201 course instructed by Mrs. Nahid ferdousi, lecturer of Department of Business Administration of University of Asia Pacific. This paper consists of three parts. In first part we will give a short description of currency valuation and factors that affects the currency valuation, and then we animated...
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...economy Numismatics is the scientific study of money and its history in all its varied forms. Many items have been used as commodity money such as naturally scarce precious metals, cowry shells, barley, beads etc., as well as many other things that are thought of as having value. Modern money (and most ancient money) is essentially a token — in other words, an abstraction. Paper currency is perhaps the most common type of physical money today. However, objects of gold or silver present many of money's essential properties. Non-monetary exchange: barter and gift Contrary to popular conception, there is no evidence of a society or economy that relied primarily on barter. Instead, non-monetary societies operated largely along the principles of gift economics. When barter did in fact occur, it was usually between either complete strangers or would-be enemies. In a gift economy, valuable goods and services are regularly given without any explicit agreement for immediate or future rewards (i.e. there is no formal quid pro quo).[3]Ideally, simultaneous or recurring giving serves to circulate and redistribute valuables within the community. There are various social theories concerning gift economies. Some consider the gifts to be a form of reciprocal altruism. Another interpretation is that social status is awarded in return for the 'gifts'.[4] Consider for example, the sharing of food in some hunter-gatherer societies, where food-sharing is a safeguard against the...
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...Virtual currency is currency people can use to make payments in virtual environments like gaming and social networking sites. It is possible to earn it by completing tasks in the virtual environment or simply participating for a set period of time, and users can also buy it, converting real currency into virtual, usually at a very favorable exchange rate. Virtual currencies like Bitcoin, Ripple, Litecoin and others have developed rapidly these years. Compared with traditional currency, virtual currency differs in many aspects. However, will virtual currency be able to take over traditional currency in the future? Economists have different idea on this question. The essay is presenting the arguments that virtual currency will replace traditional currency and vise-versa. One argument comes from People.cn: Some virtual currencies have become independent currencies and no longer depend on sovereign currencies. With future development, virtual currencies will replace traditional currencies. (Can Virtual Currencies Strike the Real World? 2013) In this argument, the premise is some virtual currencies have become independent currencies and no longer depend on sovereign currencies. This premise is deniable. Virtual currencies are not independent by now. They still need the support of sovereign currencies. For an example, people use the real money to buy Bitcoin and store it in a digital wallet. Or by mining, people can get Bitcoin, but the real money is still necessary to buy...
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...Money Importance of Money Money is an essential and basic necessity in a modern economy. In the beginning of human existence, human needs were so simple that they could be satisfied by barter system , i.e., exchange of goods for goods. In baster system, an individual produces some goods in greater quantity than what he could consume and then exchanges the extra units with another individual for something he needed in return. Barter system suffered from lack of double coincidence of wants, lack of common measure of value, difficulty in stored of extra goods and indivisibility of goods. The main advantage of using money is that it decomposes a single barter transaction into two separate transaction of Sale andPurchase. People can hold their wealth in the form of money as a generalised purchasing power which can be utilised to buy goods and services as and when they desire. Money s a pivot around which the whole economy revolves. It alone has the power to buy things directly in the market. It does not require to be spent. All economic system-Capitalist, Socialist and Maixed-need money. 1. Money may not produce anything, but without it, nothing can be produced. 2. With the help of money, consumers make payment for goods and services. 3. With the help of money, producers can but raw material, plant and machinery. They can settle their debts and pay corporate taxes. 4. Money has contributed to economic growth all over the world because it has removed trade barriers...
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...Money began as a standard medium of exchange for a trading community. Money could be in any form, which depends on the location of the community. Some textbooks state the function of money in four matters; as a medium of exchange, a unit of account, a standard of deferred payment, and a store of value. Money has develop in pace and parallel with human civilization from the barter-system, the commodity money, the evolution of the fiat money to the technology of e-money. The Barter System Barter system is an old-age method that was created adopted by people to exchange their services and goods for other goods or services in return. During ancient times, barter system was a local phenomenon, which involved people in the same locality. The history of bartering-system can be traced back to 6000 BC where it is believed that barter system was introduced by the tribes of Mesopotamia. This system was then adopted by the Phoenicians, who bartered their goods to people in other cities located across the oceans. People used to exchange their goods for weapons, tea, spices, and food items and sometimes, even human skulls were used for barter. The advantage of bartering is that it does not involve money. You can buy an item in exchange for some other thing you currently have, but don't want. But despite the advantages, the main drawback of this system was that there were no standard criteria to determine the value of goods and services, and this resulted in disputes and clashes. Another...
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...large quantities and gradually displaced the bezant gold coin as the major international currency, circulating throughout the Muslim world and the Christian Europe as well. The creation of dirhams and dinars is one of the blessings of Allah. They are stones having no intrinsic usufruct or utility but all human being needs them because everybody needs large number of commodities. The needs to revisit the gold dinar as a monetary stability has been voiced out by many scholars and ulama’s since 1970s. The resistance towards the interest economy could be the major motivation for the comeback of gold dinar. The prohibition of interest is not only mentioned in the Quran but the Bible and Torah. The gold prices are indeed relatively stable compared to other commodity prices, exchange rate movement and the stock market index. Manipulation of currencies and the impact toward one economy could be reduced because of the fact that gold does not inflate in value as it is a commodity and, thus has an intrinsic value. The counterfeiting would be checked if gold coin were used. By sing dinar and elimination of interest, Islamic country would have a stable currency and monetary systems, money supply growth can be expected not to overshoot growth in the real sector, thus eliminating the inflationary pressure in the economy. If all these exchange rates are eliminated by means of a single currency like...
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...Name) INB 205 – International Business (Enter Teacher) (Enter Date) World currencies are the most highly traded item on the global market, and gold is the most sought after and valued metal that always holds its value. Prior to 1931 gold was used as a form of back up for the value of currency. Many nations used gold as the foundation for their currency. However, now world currencies are no longer backed by gold reserves. Currencies are traded globally and now hold their strength in their trading value, yet gold is still a commodity that is traded in its own market. The gold standard was abandoned, first by Great Britain in 1931, and the United States followed suit in 1933, (2001, Lawrence). It was in the beginning of the great depression that governments believed that the gold standard was not allowing currency to be flexible with current economic conditions, thus resulting from recession to depression. In turn gold was abandon as currency value and currency was basically at face value. In the 1800’s gold and silver were the valued metals that were traded, however gold was the mainly traded because of its high value and return. Although there was no official gold standard, gold was the main source of currency back up. It was not until 1900 that gold was officially acknowledged due to the Gold Standard Act, (Moffat, 2007). To understand how gold use to value was currency Mike Moffat explains, The Encyclopedia of Economics and Liberty defines the gold...
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