Currency In Order Research Articles

Intertemporal Currency Substitution and Government Deficits

This paper highlights the importance of having a strong alternative world currency in order to place a constraint on the ability of a single dominant world currency being able to extract resources from the rest of the world through monetary policy. The effects of monetisation of the budget deficit and the advantages of strong currencies over weaker ones arising from their use as an international store of value are investigated. We find that the long run the budget deficit does not need to be zero. This is because the inflation tax generates resource transfers to the country whose currency is the preferred international store of wealth. Furthermore, the trade balance does not need to be zero, providing there is currency substitution and asymmetry between countries. Thus, the results we obtain are strikingly different from any comparable work in the literature.

"You Are Demanding Tax from the Dead:" The Introduction of Direct Taxation and Its Aftermath in South-Eastern Nigeria, 1928-39

During the final phase of the British conquest of the south-eastern region of Nigeria, which ended in 1914, the colonial administrative personnel accompanying the military columns was given specific instructions by Lord Lugard.' Among others, it was to assure the conquered people that Nothing which is theirs will be taken from them; no demands of any kind will be made, save that they must be prepared to sell rations to troops and officials, and to furnish carriers in exchange for payment.2 Yet fifteen years later, the region was to explode in a women-led social upheaval linked in crucial respects to the introduction of direct taxation in 1928. The Women's War of 1929 was perhaps the greatest political challenge the British administration in Nigeria had to face since pacification.3 In subsequent years, the administration was to spend a significant part of its time and resources suppressing anti-tax resistance in different parts of south-eastern Nigeria. The successful imposition of direct taxation marked the final phase of the consolidation of British rule in the region.Like any other government, ancient or modern, taxes or tributes were central to the economic and fiscal strategies of the colonial administration in Nigeria. Not only did taxes constitute crucial sources of revenue to the state, but their payment marked the acceptance of state authority, willingly or unwillingly, by the affected people. No less important, as popularly argued in the literature on European rule in Africa, taxation was one of the major mechanisms for expanding and strengthening the integration of local populations into market networks mainly for the purpose of stimulating exchange production, especially for export.4 Such export activity promoted Nigerian links with the world economy. When the colonial administration sought to drive into extinction the indigenous currencies in order to ensure economic and financial unification of the country through the instrumentality of British West African currency, taxation was perceived as a key weapon for the project.5With the exception of a few studies, the process of taxation and its wider ramifications for the political economy of African colonial states remain potentially rich fields of fiscal history in which little has been achieved. In the case of Nigeria, Newbury has helped shed light on the evolution of public finance in the northern part of the country.7 Studies of taxation in southern Nigeria have tended to focus on the Women's War of 1929,* regarded as a fundamental outcome of the advent of direct taxation. Direct taxation was a revolutionary innovation in south-eastern Nigeria and therefore requires a more detailed analysis and reinterpretation of events than existing works have achieved. Based mainly on archival sources, some of which have hardly been examined hitherto, the present paper explores the process of the introduction of direct taxation into our area of study, the political and social consequences of that introduction as well as its implications for government's fiscal and economic policies during the period under consideration. The study covers the decade of the Great Depression to the outbreak of the second World War, during which time a hitherto unidentified combination of the collapse in commodity prices and the concomitant depreciation of the manilla currency became central to colonial resistance. Other questions which the paper attempts to address include the relationship between taxation, the export economy and public finance, as well as the contribution of taxation policy and tax money to social development.British Rule and the Advent of Taxation in NigeriaUpon the proclamation of the Protectorate of Northern Nigeria in 1900, Frederick Lugard - the first High Commissioner - began examining methods of direct taxation in the region within the existing Islamic framework.9 Despite the amalgamation of northern and southern Nigeria into one political entity in 1914 under Lugard, the country continued to exist as two relatively autonomous regions the Northern Province and the Southern Provinces (later Western Provinces and Eastern Provinces). …

Foreign Currency Pricing

A special case of dollarization is analyzed: quotation of prices in dollars. The proposed explanation is price stickiness: when price adjustment is costly, firms prefer to fix their prices in a stable foreign currency in order to avoid frequent price changes.The proposed model demonstrates that there are often two Nash equilibria in an economy populated by symmetric firms: an equilibrium with uniform domestic currency pricing and one with uniform dollar pricing. Hence, foreign currency pricing may exhibit hysteresis. The model also demonstrates that the degree of competition in the economy is important in determining the pricing currency.

System for foreign exchange trading using genetic algorithms and reinforcement learning

Foreign exchange trading has emerged recently as a significant activity in many countries. As with most forms of trading, the activity is influenced by many random parameters so that the creation of a system that effectively emulates the trading process will be very helpful. A major issue for traders in the deregulated Foreign Exchange Market is when to sell and when to buy a particular currency in order to maximize profit. This paper presents novel trading strategies based on the machine learning methods of genetic algorithms and reinforcement learning.

Dynamic Relations between International Equity and Currency Markets: The Role of Currency Order Flow*

Previous research on the dynamic linkages between international financial markets focused on bivariate interequity or intercurrency relationships and do not allow a specific role for the currency or equity market, respectively. In this paper, we hypothesize that there are important, yet not well understood, dynamic relationships between international equity and currency markets and these are driven by information spillover via the mechanism of currency order flow. Using a trivariate asymmetric GARCH framework, we find that the relationships between equity and currency markets are significant, bidirectional, and pervasive. These relationships, which coexist with the relationships between U.S. and foreign equity markets, are much stronger in the volatilities than in the means. Importantly, we find strong support for our information spillover hypothesis where currency order flow is the economic mechanism by which information is transmitted.

Interest Rate Defenses of Currency Pegs

This paper studies a policy often used to defend a currency peg: raising short-term interest rates. The rationale for this policy is to stem demand for foreign reserves. Yet, this mechanism is absent from most monetary models. This paper develops a general equilibrium model with asset market frictions where this policy can be effective. The friction I emphasize is the same as in Lucas (1990): money is required for asset transactions. When the government raises domestic interest rates, agents want to increase their holdings of domestic currency in order to acquire more domestic-currency-denominated assets. Thus, agents do not run on the reserves of the central bank, and the peg survives. A key implication of the model is that an interest rate defense can always be successful, but at great costs for domestic agents. Hence the reluctance of governments to sustain this policy for long periods of time.

Persistence, Performance and Prices in Foreign Exchange Markets

Using detailed data on currency transactions of institutional investors, this paper shows that funds that experience high returns on their currency holdings also execute currency trades at more favourable prices. This observation is consistent with foreign exchange dealers bidding for information from successful traders. If true, this provides little incentive for successful funds to intertemporally split orders to avoid tipping off dealers. In accordance with this, the paper finds that better performing funds have less persistent currency order flow. These results are consistent with the theoretical model of Naik, Neuberger and Viswanathan [1999]. The results can also be explained by the funds acting as secondary providers of liquidity in these markets, or by dealers perceiving that funds have different price elasticities of demand for currencies, and pricing accordingly.

Establishing an Exchange Rate Mechanism (ERM) with Chinese Characteristics: An Option for Taiwan, China and Hong Kong to Prevent the Next Currency Crisis?

History shows that governments usually rethink their views on international macroeconomic cooperation after the emergence of a crisis. The response of the Asian countries after the speculative attacks occurred in 1997 may be considered as another example after the European ERM crisis in 1992-93. Nevertheless, some new ideas such as the creation of an 'Asian Monetary Fund' or an 'Asian single currency' may still stay at the stage of political slogans without a realistic executive plan until the next currency crisis occurs. Furthermore, even if a regional exchange rate and monetary cooperative mechanism would be implemented, it is still doubtful whether this would be enough to prevent the occurrence of another currency crisis in Asia or its sub-regional economies. The purpose of this paper is to provide an initial assessment whether an exchange rate mechanism with regional characteristics would be helpful to defend against possible future speculative attacks. We concentrate on the so-called Economic Area (CEA), a good experimental ground due to the cultural similarities and the close but indirect economic ties among the economies in the area. We consider the establishment of a Chinese Exchange Rate Mechanism (CERM) following Robert Mundell's multiple-currency union (2000a, b), in which all CEA members peg their currencies to an international currency in order to achieve the economic convergence and the stability of exchange rates. We apply a dynamic game approach to cooperative and non-cooperative scenarios and simulate the different sources of shocks according to the past experience of currency crises. Under the assumed CERM to induce the conflicts between internal and external economic situations, the values of the loss functions and the crisis indices indicate changes in welfare and the possibility of occurrence of a currency crisis in any of the economies belonging to the CEA. The parameters in the simulation are mainly based on calibration of econometric estimation for the CEA, but some reasonable adjustments are necessary. The simulation results for the CERM are only indicative but are a valuable reference to analyze the value of the regional exchange rates and the monetary cooperation in the policy choice.

Currency board, dollarisation or flexible exchange rates for emerging economies? Reflections on Argentina

Since the 1990s many emerging countries have adopted a fixed exchange-rate peg vis-a-vis a reserve currency in order to cope with economic imbalances such as buoyant inflation, high unemployment or staggering economic growth. However, after a period of economic stabilisation and prosperity, overheating effects showed up in several countries that were often coupled with difficulties in the banking and/or the real estate sector. Sticking with a fixed peg, the likelihood of a currency crisis increased. The case of Argentina shows that even with a currency board it is difficult to restore confidence if a crisis has already been developing for several years. This article presents an economic analysis of the Argentina crisis.

Fiscal Dominance and Money Growth in Italy: The Long Record

Fiscal dominance, the extent to which government deficits condition the growth of the money supply, has been the prevailing regime in Italian monetary history since political unification in 1861. The nature of the institutional structure linking budget deficits to monetary base creation has changed over time. In the early days, the profit-seeking banks of issue intermittently exceeded the legal ceiling on their outstanding currency in order to lend to the government. Public finance exerted stronger influence on monetary policy, first in the 1930s and later in the 1970s, when fiscal dominance reached its high point. In the 1990s fiscal dominance held but in the opposite direction. To meet the provisions of the Maastricht Treaty and qualify for the European Monetary Union, Italian policy makers had to grant independence to the central bank and drastically curtail budget deficits.

Another visit to the Cagan model of money demand: the latest Russian experience

This paper investigates empirically the Cagan style money demand function for Russia during the recent hyperinflation era, 1992–1994. Using the Johansen multivariate cointegration test, results indicate that rate of change of exchange rate (currency depreciation) is required in the demand function for real M2 and real currency in order to obtain a stationary long-run relationship. Error correction model results show that there exists a bidirectional causality between real money balances and determinants of real money demand, including currency depreciation. Exchange rate sensitivity of the demand for money indicates currency substitution.

Albanian economic performance: Stagnation in the 1980s

Albanian economic performance: Stagnation in the 1980s

Graph Theoretic Approaches to Foreign Exchange Operations

Trading in currencies in order to obtain the best possible exchange rate is known as arbitrage and can broadly be divided into three categories:1) Space Arbitrage––transactions to take advantage of discrepancies between rates quoted at the same time in different markets.2) Time Arbitrage––transactions to take advantage of discrepancies between forward margins for different maturities.3) Interest Arbitrage––transactions to take advantage of discrepancies between yield on short-term investments in different currencies. This form of arbitrage can be split into (a) Covered and (b) Uncovered (speculative) interest arbitrage. The former variety uses today's forward rate for forward conversion back into our holding currency; the latter allows the dealer to use the spot rate existing in the future.

State Operations in Gold and Foreign Exchange

This paper discusses the implications of state transactions in gold and foreign exchange. As used here, the term government includes (a) central banks, (b) treasuries, and (c) exchange-stabilization and exchange-control authorities.1 Gold today is held mainly in bars of about ninety-one per cent pure metal worth roughly $I4,000. They are stored either in the government's own vaults or (especially in recent years) on earmark with the Bank of England or the Federal Reserve Bank of New York. Foreign exchange includes bank deposits abroad and holdings of short-term securities, such as the United States treasury bills held by many foreign governments,2 and commercial bills and acceptances, particularly in the United Kingdom. Foreign exchange transactions arise when importers are paying their suppliers in the currency of the latter or when exporters are converting their earnings abroad into their own currency in order to cover their domestic operating expenses. Such transactions also arise because of capital movements among countries. Investors may purchase foreign securities because returns are higher or risks lower than those on domestic securities; or, having made such investments in the past, they may wish to invest their assets at home rather than abroad.