8

One of the key requirements for a currency area to be successful is that there must be a sustainable political mandate to support fiscal transfers between regions, to provide the balancing mechanism that would otherwise have been performed by fluctuating currency rates between those regions. Another is that labour can move freely between regions. The ...


6

To maintain the currency peg, the Hong Kong Monetary Authority (HKMA) has to buy HKD and sell USD when the currency comes under depreciation pressure and sell HKD and buy USD when the currency comes under appreciation pressure. Depreciation pressure: The HKMA operates a currency board, which means that more than 100% of outstanding HKD is backed by USD ...


6

Covering the historical part, you may want to look at: 1) The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order which appears to be written in a "non-fiction thriller" style, revolving around the argument that "(Bretton Woods) was in reality part of a much more ambitious geopolitical agenda hatched ...


5

This quotation by Michael Bordo, Owen F Humpage, and Anna J Schwartz (2012) was the richest description I could find on how the SNB achieved the floor: In March 2008, the Swiss National Bank eased monetary policy in response to expectations of deflation, deteriorating economic conditions, financial-market distress, and a Swiss franc appreciation ...


4

The Mexican government has a complicated history of currency intervention, which can be read about in a detailed timeline here. However, in 1994 the devaluation was caused by the end of government intervention. Up until that date the Mexican government had a set range of USD values that the peso could float within, so a sort of flexible peg to the USD. In ...


4

From the Economist: The SNB suddenly dropped the cap last week for several reasons. First, many Swiss are angry that the SNB has built up such large foreign-exchange reserves. Printing all those francs, they say, will eventually lead to hyperinflation. Those fears are probably unfounded: Swiss inflation is too low, not too high. But it is a hot political ...


3

I largely agree with mathtastic, but I think it is necessary to add something. When joining a monetary union a country does indeed lose its power to conduct monetary policy. However simply not being able to reduce the interest rate was not the main issue that Greece and other countries faced because of being in the Eurozone. This is because the ECB lowered ...


2

He's being glib. The only constraints on their capacity are political, not from technical constraints or inventory issues. They can make more Kroner by changing their own balances at Danish banks,something they can do at will. As the recent Swiss episode shows, political constraints can be very real and powerful, but they certainly didn't stop defending the ...


2

When a country, or perhaps a country's central bank, prints money it is increasing the money supply. When the amount of money available in an economy increases, the value of the currency will decrease. So think about the capital flight from the Euro to the Kroner that is causing the value of that currency to spike. Printing money can basically cause a '...


2

During the Irish Pound-Sterling pegging era, we again had separate monetary authorities, but currency union. (...) In this case GBP was mostly accepted for trade in Ireland, while IEP was rarely accepted in the UK. Would GBP be in the IEP money supply, but the IEP not in the GBP? Let the states and the institutions declare what they want. To study economic ...


2

The systemic problem with currency unions, and this is true of all historical currency unions, not just the current Eurozone, is that the banking systems that comprise them expand their money supplies (money in this answer is the total sum of bank deposits) at different rates. Banking systems can also contract their money supplies, this is rarer, but equally ...


2

The Plaza Accord was implemented through market mechanisms. According to Wikipedia Central banks of the signatory nations spent $10 billion dollars. They exchanged these dollars for other currencies. This increases the supply of dollars and may even decrease demand if so far the central banks have been purchasing dollars. Due to the higher supply and not ...


2

I personally think one of the main factors (maybe the main factor) is that any country that chooses to participate in the Euro zone necessarily sacrifices monetary autonomy. That is, those countries (Greece is a good example) lose the ability to enact monetary policy to mitigate negative domestic economic trends. Further (consider Germany), joining the ...


2

Simple answer: Drawing on Ricardian model I can say the Chinese have not lost their comparative advantage in producing many types of manufactured goods. Yuan, on its way to appreciation, has to walk a few more miles to affect the comparative advantage that the Chinese possess.


2

If I remember correctly reading Krugman's opinion, he stated that to be successful, a central bank has to be associated with a government. This is to harmonize fiscal and monetary policies. If you compare France and Germany in the 1960-1970s, France was playing with inflation-devaluation, whereas Germany (as is does the ECB today) tried to be more stable. ...


2

Used to be capital controls. You could only buy dollars (or any other foreign currency) through official channels at the official favorable rates by providing documentation displaying need for said currency (e.g. Travel or import documents).


1

There are already cryptocurrencies that are backed 1:1 by dollar, see Tether and USDC, or even backed with gold, see Paxos Gold, and yes all of that are redeemable. there is no problem with it so far. There may be some trust problem, are the issuer really back the cryptocurrency with real asset? (this can solved easily by external auditing though) At 2018 ...


1

Strictly speaking it was not a peg but a cap: the Swiss National Bank said it would sell unlimited Swiss Francs at the rate of 1.2 CHF : 1 EUR. You could have bet that the Euro would rise against the Swiss franc by borrowing some Swiss Francs and selling them for Euros, and then taking any profit or loss by unwinding the transaction. If for example you ...


1

For the central bank to decrease the currency supply and raise the value of the Peso they need something to buy up the currency with. They can't simply ask for donations of Pesos, they have to buy pesos using another currency which holds real value. The US dollar is generally the standard when it comes to those types of interactions, in the case of the ...


1

Simply having more dollars may have served two purposes. Firstly, more dollars would mean that the central bank could have bought more pesos and exerted some upward pressure on the exchange rate. Secondly, fixed exchange rates can fall because of expectations about the central bank's credibility to its peg. If the prevailing expectation is that the central ...


1

Its not totally clear, but it seems that what they are saying is that, as long as the euro was a strong currency, they did not want to have the frank much stronger than the euro. Later, on, when the euro lost value, they no longer wanted to insure that the franc wasn't much stronger than the euro. In other words they don't want a very strong currency, but ...


1

Different elements can contribute to such an evolution, without trying to be exhaustive, these are a few general comments: What happened to the real effective exchange rate? The evolution of the real effective exchange rate may differ from the nominal bilateral exchange rate with the USD to the extent that price evolutions in China (international ...


1

There's a bunch of things you could look at. Here's a couple: Foreign currency reserves. Does Switzerland have a lot of dollars on hand? If so, there's nothing to worry about, the peg will hold. Switzerland can just buy CHF using dollars, increasing the demand and therefore the price, until the price is back to normal. (CHF is the abbreviation for the Swiss ...


1

If they expected the peg to break then it is clear that the franc would gain in value. Since the currency has been held artifically cheap by the central bank, i.e. would have gained value if the central bank had not intervened, then the moment the central bank stops intervening (abandons the peg) the currency will appreciate. Why would it have gone up ...


1

A currency can be indexed but so can a bond. An indexed bond is one where the coupons and principal are indexed to another currency (the U.S dollar in the case of Tesobonos) at the spot rate in effect at the time of issuance. So you actually pay in the local currency but how much you pay depends on the prevailing exchange rates when payment is due. A bond ...


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