Go Lean Commentary
Want a good return on your investment? How about 45 percent? People have enjoyed these returns in the Foreign Currency Exchange (Fx) Markets.
Sounds appealing, right?!
This is why “they” do what “they” do. Currency Speculators & Vulture Capitalists that is! They can work their “Black Magic” and exploit vulnerable countries-currencies. Imagine the crime: “they” lend or borrow ill-advised monies requiring repayment in a foreign currency; then “they” manipulate supply and demand of the domestic currency against that foreign currency so as “to buy low and sell high”, at the expense of the foreign reserves maintained by a nation-state. Imagine hoarding the supply or artificially inflating the demand of the currency to manipulate a price increase. Boom! Instant profits.
This is the unrighteous work of Currency Assassins, Manipulators and/or Speculators. There are so many dangers of Speculative Attacks. Learn more here (in addition to the Appendix B VIDEO below):
In Economics, a speculative attack is a precipitous acquisition of some assets (currencies, gold, emission permits, remaining quotas) by previously inactive speculators. The first model of a speculative attack was contained in a 1975 discussion paper on the gold market by Stephen Salant and Dale Henderson at the Federal Reserve Board. Paul Krugman, who visited the Board as a graduate student intern, soon [1] adapted their mechanism[2] to explain speculative attacks in the foreign exchange market.[3] – Source.
These ones, who practice these exploits are indeed Bad Actors.
The book Go Lean…Caribbean warns the region to be On Guard for Bad Actors … like these:
… history teaches that with the emergence of new economic engines, “bad actors” will also emerge thereafter to exploit the opportunities, with good, bad and evil intent. – Go Lean book Page 21.
This subject matter is not just academic; this happened for real, even to the large country of Great Britain/United Kingdom; this was the experience of the notorious Black Wednesday:
An example of this can be seen in the United Kingdom prior to the implementation of the Euro [currency] when European countries used a fixed exchange rate amongst the nations. The Bank of England had an interest rate that was too low while Germany had a relatively higher interest rate. Speculators increasingly borrowed money from the Bank of England and converted the money into the German mark at the fixed exchange rate. The demand for the British pound dropped so much that the exchange rate was no longer able to be maintained and the pound depreciated suddenly. Investors were then able to convert their German marks back into pounds at a significantly higher rate, allowing them to pay off their loans and keep large profits.
In a previous Go Lean Commentary, the dangers of currency speculation was identified and qualified:
Venezuela sues black market currency website in US
The Central Bank of Venezuela has filed a lawsuit in US courts against Miami-based entity DolarToday, alleging that this website undermines the Venezuelan bank, currency and economy by falsifying the country’s exchange rates.
Also, in another Go Lean Commentary, the dangers of Economic Assassins – Vulture Capitalists – were identified & qualified:
Beware of Vulture Capitalists
The term “vulture fund” is a metaphor, which can be considered a pejorative term, used to compare hedge funds to the behavior of vulture birds “preying” on debtors in financial distress by purchasing the now-cheap credit on a secondary market to make a large monetary gain, in many cases leaving the debtor in a worse state. …This dire disposition of debt is … applies to many other communities, in North America, Europe (think Greece), Latin America and even in the Caribbean. …
The better the Credit Rating … the less of a chance to be limited to Vulture Capitalists.
Holy Cow! Economic Assassins; Vulture Capitalists; Currency Speculators; these are truly Bad Actors and a serious threat! Trade & economic stewardship is hard!
In truth, the book Go Lean…Caribbean calls this effort heavy-lifting, as it presents the strategies, tactics, implementations and advocacies to shepherd the Caribbean economy. The book serves as a roadmap for the introduction and implementation of the technocratic Caribbean Union Trade Federation (CU) and the aligning Caribbean Central Bank (CCB). Considering the branding, the emphasis is on trade . The CU/CCB will serve as integrated entities to shepherd the complexities for the region’s currency affairs.
This commentary is the final of a 5-part series (5 of 5) from the movement behind the Go Lean book in consideration of the subject “In Defense of Trade“. A discussion on currency is a discussion on trade. The focus is that for a new economic regime, Trade optimization must be coupled with optimization in monetary governance. The commentaries in the series are as follows:
- In Defense of Trade: China Realities
- In Defense of Trade: Macy’s Thanksgiving Parade Model – ENCORE
- In Defense of Trade: India BPO’s
- In Defense of Trade: Bilateral Tariffs – No one wins
- In Defense of Trade: Currency Assassins – Real Threat
No doubt, despite the identified dangers, there is the need to grow the Caribbean economy. We need the jobs, entrepreneurial opportunities, better educational and healthcare options that would arise because of the embrace of trade. So we must have “Guards at the Gate” to protect our homeland from all Bad Actors. This is the quest of the Go Lean movement. In fact, the books states this quest as prime directives. The prime directives are pronounced as the following statements:
- Optimization of the economic engines in order to grow the regional economy to $800 Billion & create 2.2 million new jobs.
- Establishment of a security apparatus to protect the resultant economic engines and mitigate challenges/threats to ensure public safety for the region’s stakeholders.
- Improvement of Caribbean governance, including a separation-of-powers with member-states, to support these economic/security engines.
These prime directives reflect the best practice for managing Caribbean societal engines – economy, security and governance – with an interdependent focus. This was pronounced at the outset of the book in the opening Declaration of Interdependence (Pages 10 – 13):
Preamble: … when a long train of abuses and usurpations, pursuing invariably the same object evinces a design to reduce them under absolute despotism, it is their right, it is their duty, to throw off such government, and to provide new guards for their future security.
x. Whereas we are surrounded and allied to nations of larger proportions in land mass, populations, and treasuries, elements in their societies may have ill-intent in their pursuits, at the expense of the safety and security of our citizens. We must therefore appoint “new guards” to ensure our public safety and threats against our society, both domestic and foreign. …
xvi. Whereas security of our homeland is inextricably linked to prosperity of the homeland, the economic and security interest of the region needs to be aligned under the same governance. Since economic crimes … can imperil the functioning of the wheels of commerce for all the citizenry, the accedence of this Federation must equip the security apparatus with the tools and techniques for predictive and proactive interdictions.
xxiv. Whereas a free market economy can be induced and spurred for continuous progress, the Federation must install the controls to better manage aspects of the economy: jobs, inflation, savings rate, investments and other economic principles. Thereby attracting direct foreign investment because of the stability and vibrancy of our economy.
There must be New Guards to mitigate the Caribbean advance into trade. This is the charter of the CU Trade Federation. The vision is to provide the stewardship for the region’s economic engines, to optimize trade for intra-region and also extra-regional. This vision details some sound principles for adoption; consider this nugget from Page 129:
Caribbean Dollar
The Caribbean Dollar will be the medium of exchange for trade between CU member-states. There is no need to trade in any foreign currency (i.e. US$). In fact, the Caribbean Central Bank will control the monetary policies of the CU region. Any mis-management of US fiscal policies, often the case with Congress’ deficit spending, would not impede on the necessary trade of one Caribbean state to another.
The CCB will be empowered to intervene in the currency affairs of the region. This constitute the New Guards that will be watching the Caribbean regional marketplace. This is what Central Banks do – should do – and now there will be one for our region:
Currency intervention is a monetary policy operation which occurs when a government or central bank buys or sells foreign currency in exchange for their own domestic currency, generally with the intention of influencing the exchange rate and trade policy. Policymakers may have different reasons for currency manipulation, such as controlling inflation, maintaining international competitiveness, financial stability, etc. – Source
In the Caribbean we have a crisis that stems from our high societal abandonment rate. Every time we have had currency devaluation episodes, a consequence has been citizens fleeing away from their homelands. What is the cause of these episodes? Number 1 reason/answer: Currency Speculators … trying to exploit our vulnerabilities. See this evidence-sample:
- Barbados
Like many small developing countries, Barbados’ capital markets are comparatively unsophisticated and protected by legislative and non-legislative barriers to capital flows. However, by imposing a simple Uncovered Interest Parity (UIP) condition, the counterfactual situation of free capital movements and efficient capital markets can be simulated. It is shown that in these conditions successful speculative attacks on the currency anchor would have occurred in times of macroeconomic disequilibrium. This paper is, therefore, supportive of those who, in the wake of the 1990s’ major financial, balance of payments and currency crises, have argued for a more cautious approach to financial and capital account liberalisation, particularly for those countries that have chosen to maintain a fixed currency arrangement.
Source: Caribbean Development Bank Staff Working Paper May 2000; retrieved November 27, 2018 from: http://www.caribank.org/uploads/publications-reports/staff-papers/wkgppr_2_exchange_rates[1].pdf - Jamaica
This paper attempts to generate an empirical model aimed at predicting the timing and magnitude of currency depreciation forced by speculative attacks on Jamaica’s managed exchange rate system. The paper is grounded within a first generation approach (‘fundamentals approach’) to speculative attack modeling, which stresses the role played by weak economic fundamentals in inducing currency crises. –
Source: Bank of Jamaica White Paper; “Estimation of Speculative Attach Models and the Implications for Macroeconomic Policy – 1990 to 2000“; published January 2001; retrieved November 27, 2018 from: http://www.boj.org.jm/uploads/pdf/papers_pamphlets/papers_pamphlets_Estimation_of_Speculative_Attack_Models_and_the_Implication_for_Macroeconomic_Policy.pdf - Dominican Republic
This paper examines the determinants of speculative attacks that occurred recently in the Dominican Republic, and proposes a series of indicators to serve as an early warning system for identifying vulnerable periods. The estimates were made using monthly data covering the period between January 1996 and June 2008. The results show that the proposed indicators have the ability to reasonably explain and predict the existence of a speculative attack.
Source: Academic Paper – Pontificia Universidad Católica Madre y Maestra; “Pressure and speculative attacks on the foreign exchange market of the Dominican Republic“; published November 2008; retrieved November 27, 2018 from: https://www.researchgate.net/publication/254443014_Pressure_and_speculative_attacks_on_the_foreign_exchange_market_of_the_Dominican_Republic
Here in the Caribbean, we must learn …
Fool me once, shame on you; fool me twice same on me.
This Go Lean/CU roadmap is designed to address all of this societal engines: economic (monetary), security and governance. The Go Lean book – within its 370 pages – describes how a new Caribbean regime can be empowered to promote and protect trade. The solutions include adopting new community ethos; plus the execution of new strategies, tactics, and implementations to impact the regional economy. Consider this one advocacy from the book, for optimizing Foreign Currency management. See the specific plans, excerpts and headlines on Page 154 under the title:
10 Ways to Better Manage Foreign Exchange
| The Bottom Line on Foreign Exchange Markets
The foreign exchange market is the most liquid financial market in the world. [This is a recent history compared to international commerce in general, with most of the market structure being developed since World War II and after the abandonment of the gold standard. After WWII, the Bretton Woods Accord was signed allowing currencies to fluctuate within a range of 1% to the currencies par; then this structure was eclipsed in the 1970’s, ending fixed rates of exchange and bringing about eventually a free-floating currency system. After 40 years and more iterations, we now have the status quo]. Today, currency traders include large banks, central banks, institutional investors, currency speculators, corporations, governments, other financial institutions, and retail investors. The average daily turnover in the global foreign exchange and related markets is continuously growing. According to the 2010 Triennial Central Bank Survey, coordinated by the Bank for International Settlements, average daily turnover was US$3.98 trillion in April 2010 (vs $1.7 trillion in 1998). Of this $3.98 trillion, $1.5 trillion was spot transactions and $2.5 trillion was traded in outright forwards, swaps and other derivatives. Foreign exchange trading increased by 20% between April 2007 and April 2010 and has more than doubled since 2004. A foreign exchange market is closest to the ideal of perfect competition, notwithstanding currency intervention (capital controls) by central banks. Totally free markets spurn the development of complex products like derivatives. The 2007 – 2009 Global Financial Crisis demonstrated that free-radical derivative markets do bring systemic threats. (Appendix ZA on Page 315). |
|
| 1 | Lean-in for the Caribbean Single Market & Economy
This treaty allows for the unification of the region into one market, thereby expanding to an economy of 30 countries, 42 million people and GDP of over $800 Billion (circa 2010). A mission of the CU is to empower the economic engines in the region. The Caribbean Central Bank (CCB) will manage the monetary policy and reserves, taking a long view to the region’s economic vibrancy. The Governors of the CCB will be appointed for 14-year terms, thus insulating them from political alignments. This strategy is necessary for the management of advanced exchange products affecting the region’s capital controls (derivatives will be managed in a controlled environment to assuage against systemic risk). |
| 2 | Mixed-Basket of Foreign Reserves
The Caribbean Central Bank will control the money supply of the region with new monetary tools (i.e. Open Market Operations not available before), and using a mixed-basket (modeled after the IMF) of foreign reserves assuage the risk tied to any one Super Power, (a la the US dollar). The tool-kits for capital controls (see Appendix ZA) expand under this management approach. The US decisions are made by and for Americans, the Caribbean gets no vote. |
| 3 | Overcome Fear of Math |
| 4 | E-Payments Neutralizations |
| 5 | Apply Lessons-Learned in Region |
| 6 | Currency Manipulators / Speculators
The Caribbean Central Bank will enforce monetary control for amounts exceeding a moderate limit, to assuage currency manipulators from “gaming” and abusing the system for illicit gains. This was a lesson-learned from Jamaica. |
| 7 | Realities of Dual Currencies
The CU Treaty does not nullify local currencies, rather the C$ is designed to replace the US Dollar default dominance in the region. As such all regional casinos (except in PR & USVI) will game in C$, not US$. This nullifies “black markets”. |
| 8 | Diaspora Realities |
| 9 | Euro Zone Model for CU and CCB |
| 10 | Add the British Pound Sterling to CCB Basket |
Do you want to grow the economy?
Trade … more!
Do you want to trade more?
Be prepared to buy-and-sell foreign currency; and be prepared for foreigners to buy-and-sell your domestic currency.
They will be strangers; some will be nice; some will be Bad Actors – “Currency Assassins”.
This is the reality of global trade and foreign currency: Bad Actors will always merge … some with evil intent.
Currency Assassins … are real!
But we can be better and do better. We can trade with the globe and be On Guard for Bad Actors.
Yes, we can …
Mastering globalization, trade and foreign currency is how we must compete in today’s trade battles. This is the quest of the Go Lean roadmap.
Everyone in the Caribbean is urged to lean-in to this roadmap to make the Caribbean a better place to live, work and play. 🙂
Download the free e-Book of Go Lean … Caribbean – now!
Sign the petition to lean-in for this roadmap for the Caribbean Union Trade Federation.
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Appendix A – Understanding the Foreign Exchange Market
Lesson summary
The foreign exchange market is like any other market insofar as something is being bought and sold. However, the foreign exchange market is unique in two ways:
- A currencyis being bought and sold, rather than a good or service
- The currency being bought and sold is being bought with a different currency.
See remainder of lesson at source here:
Source- Khan Academy e-Learning retrieved November 26, 2018 from: https://www.khanacademy.org/economics-finance-domain/macroeconomics/forex-trade-topic/macro-the-foreign-exchange-market/a/the-foreign-exchange-market
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Appendix B VIDEO – Speculative attack on a currency | Foreign exchange and trade | Macroeconomics | Khan Academy – https://youtu.be/P2IWGlR1SHs
Khan Academy
Published on May 8, 2012 – Macroeconomics on Khan Academy: Topics covered in a traditional college level introductory macroeconomics course.
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