Victus Spiritus


The Fallacy in Controlling Currency Value

12 Oct 2010

National governments endeavor to influence their local currency through a number of tactics. The tactics leveraged include but are not limited to, creating more currency, altering the federal lending interest rate, and issuing attractive bonds (debt). Real trends in currency values are based on market forces which are beyond efficient government control. Governments have heavy influence over a variety of financial activities, but their ability to predict and dictate future productivity is nonexistent. I propose that government effort to control currency value is based on a fallacy.

In logic and rhetoric, a fallacy is a misconception resulting from incorrect reasoning in argumentation

In free markets monetary values of goods and services are a function of perception, supply, and demand. Simply stated, the price is what the market will bear. In fluid markets, prices quickly converge and settle on stable values which often are disconnected from costs*. Prices are driven by costs only when a market is fully commoditized.

Although currency is continually exchanged it's relative value can swing substantially. This is a signal of volatility. Like other goods currency's value is a function of supply and demand. But unlike other market goods, there are extenuating circumstances which play a role in currency value. Currency stability is one driver of its perceived value, while the current and future productive capacity of the host nation compared to its debt is another deciding factor. If a nation wants to positively influence its currency value it should strive to improve its stability and reduce its debt.

One World Currency

What if we could collectively come up with a globally accepted currency. A foundation outside of national affiliation would be responsible for it's availability. In order to avoid bottlenecks and the problems of centralized authority the central currency exchange (CCE) would have a strict and limited set of powers. The CCE would answer to a collection of national representatives. The final piece of global currency puzzle would be distributed localization. A global buck's relative buying power should be comparable around the world, based on local costs.

We share one currency in the US and the euro has had some success in most European nations. It's not absurd to contemplate a uniform currency as a sort of standard or protocol for global value transfer. In practice it would take the role of currency exchange markets and spread that activity to local centers, improving stability. Each local monitoring service would be required to be transparent to all other local markets, reducing the opportunity for corruption.

*= Stable values are optimal in a sense of sustainable profit margins. Losses aren't sustained indefinitely when disconnected from other profitable entities or investor funding. Even in corporations with centralized cost centers, unit losses are only tolerated when they provide a measurable strategic benefit to other profitable business areas.

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