This explains a lot in a short space. Caspar Davis ***** FORWARDED MESSAGE ***** Delivered-To: [EMAIL PROTECTED] Mime-Version: 1.0 Date: Mon, 4 Jan 1999 20:29:40 +0900 From: Hendrik Subject: currency speculation Hi... for your information: here is an intersting article - source unknown... ttyl: Hendrik -- forwarded article: -- December 29, 1998 Currency devaluations around the world are causing an exchange rate- precipitated trade flood, as goods from countries with devalued currencies easily undercut the prices of competitors in countries with strong currencies. This is not the way the global finance system was designed to operate. In theory, trade competitiveness is grounded in corporate competency -- a company's ability to produce something more efficiently than its competitors -- not in shifts in currency values. In fact, Georgetown University business professor Michael Czinkota says, trade is supposed to be driving currency values, not the other way around. Mr. Czinkota says floating exchange rates were established in the 1970's to create a system in which currency values changed in response to trade flows. "If a country has a trade surplus -- that means it sells more than it busy -- that in turn means that other countries have to demand that country's currency more than that country requires other currencies. As a result, that country's currency goes up in value. As it goes up in value, exports become more expensive. That means the trade surplus gradually will decline. That is how the system of floating exchange rates was designed -- with trade triggering the price of currency." But, Mr. Czinkota syas, financial markets have been deregulated in recent years and technological innovations have increased the speed at which both market information and money can travel around the world. As a result, he says, currency trading has taken on a life of its own, with currency flows today 100-times greater than trade flows. Trade no longer drives currency, Mr. Czinkota says. Today currencies drive trade, with dire consequences. "It has skewed the established trade patterns in a significant way and has put a lot of pressure on quite successful and competitive U.S. industries, simply because all of a sudden a lot of new imports are coming in and some export markets are closed because of the currency changes." What is needed, Mr. Czinkota says, is a new global regime to replace the one that has been rendered obsolete by changing times, a system that considers trade and finance together and seeks ways to prevent one from having an adverse impact on the other. He says until one is developed expect trade pressures to rise, and with them trade complaints and government restraints. -- ***** END of FORWARDED MESSAGE *****
