Just finished reading Hayek’s Choice in Currency, and I have a few questions to throw out.
a. He says that national currencies should be freely exchanged. Are they not already freely exchanged on the Forex?
b. He says that individual’s contracts should be allowed to be established in any currency. Is this not already possible? I don’t know if anyone is familiar with the current issue here in Poland where Polish businesses took out loans in Euros and got in a lot of trouble after the Polish Zloty got its *** kicked in the last few months. Is that not an example of what Hayek proposes.
My understanding is that when a foreigner wants to buy something from the US, he needs US dollars. In some countries, the banks and “money markets” will exchange their dollars for native units at the market rate. Other countries have their exchange “money market” fixed by law - i.e. pegged to the dollar.
If americans are buying a lot of chinese stuff, then the relative demand of RMB vs Dollars will be high - that demand pulls the value of RMB up decreasing chinese competitiveness. The chinese don’t want that. Here, the lack of a floating currency prevents market forces from working to equalize the markets, keeping chinese goods cheap and us manufactured goods relatively expensive.