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Thanks for the lesson. Excellent insight.
POP
-----Original Message-----
From: TheGonch <Daniel.Goncharoff@xxxxxxxxxxxxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: 21 January 1999 01:12
Subject: Re: Devaluation question
>Countries that peg their currency to another benchmark currency are
>trying to fight normal market forces by being a buyer or seller of last
>resort. For example, if more and more Brasilian Reals are printed by the
>govt, the market supply-demand equation would push down the value of the
>Real versus the US$. The Brasilian govt steps in and support the pegged
>price by buying Reals with its own US$ reserves. If the supply-demand
>imbalance is temporary in nature, this can be an effective way of
>smoothing out the vagaries of the market. If the economic factors are
>too large and too long in duration, the govt may begin running out of
>reserves. In that case they stop serving as buyer of last resort, and
>let the currency float to the true supply-demand equilibrium.
>
>China gets the focus now as the biggest economy pegging its rate. If
>those Europeans in favor of some sort of exchange rate linkage (eg,
>Lafontaine in Germany) get their way, the Euro might become an object of
>attention too.
>
>This is not just something that happens to developing countries. Soros
>became famous by his run on the British Pound, knocking it out of the
>ERM.
>
>Regards
>DanG
>
>HARELSDB@xxxxxxx wrote:
>>
>> Brazil recently "devalued" its currency and is allowing it to "float".
>> There are concerns that China will "devalue" its currency and cause
another
>> round of Asian problems.
>>
>> How does a country "devalue" its currency?
>>
>> Thanks,
>>
>> Dan
>> Pocatello, ID USA
>
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