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We investigate the information contained in foreign exchange (FX) volume using a novel data set from the over-the-counter market. We find volume helps predict next-day currency returns and is economically valuable for currency investors. Predictability implies a stronger return reversal for currency pairs with abnormally low volume and is driven by the component of volume unrelated to volatility, liquidity, and order flow. We rationalize these findings via a simple model, in which FX volume helps reveal the degree of asymmetric information in currency markets. Testing this prediction shows that asymmetric information is uniform across currency pairs but varies across instruments. [ABSTRACT FROM AUTHOR]

Abstract Papua New Guinea (PNG) has faced a foreign exchange (forex) shortage since 2015. The Bank of PNG has resorted to forex rationing to protect reserves, leading to a large backlog of orders and import compression. This paper surveys the structure of PNGʼs forex market and analyses recent market conditions. We argue that a real exchange rate depreciation is required to restore currency convertibility. We develop a forex market model that features a backlog of unmet orders which suggests that a frontloaded depreciation is preferred to an often‐favored gradual adjustment. Empirical results indicate that the governmentʼs large budget deficits have contributed to the forex shortage, highlighting the need for greater fiscal restraint. In the longer term, we argue for more exchange rate flexibility and forex allocation through competitive auction.

Papua New Guinea (PNG) has faced a foreign exchange (forex) shortage since 2015. The Bank of PNG has resorted to forex rationing to protect reserves, leading to a large backlog of orders and import compression. This paper surveys the structure of PNGʼs forex market and analyses recent market conditions. We argue that a real exchange rate depreciation is required to restore currency convertibility. We develop a forex market model that features a backlog of unmet orders which suggests that a frontloaded depreciation is preferred to an often‐favored gradual adjustment. Empirical results indicate that the governmentʼs large budget deficits have contributed to the forex shortage, highlighting the need for greater fiscal restraint. In the longer term, we argue for more exchange rate flexibility and forex allocation through competitive auction. [ABSTRACT FROM AUTHOR]

We investigate the impact of the real exchange rate (RER) on the growth of import-substituting sectors using the quasi-natural experiment of Argentina's large and lasting RER depreciation following the end of the Convertibility regime. To this end, we developed an episode detection algorithm to identify sectors with substantial import reductions from 2003 to 2008, while controlling for changes in aggregate income. Our analysis examines the theoretical transmission mechanisms through which the RER influences the performance of the tradable sector competing with imports. The results reveal three main findings: First, labor-intensive sectors showed a higher probability of occurrence of import substitution episodes during 2003–2008. This is in line with our expectations and the traditional trade theory, given that the RER should increase profitability in these kinds of sectors more. Second, we find that the higher level of the RER increases the probability of an import substitution episode when the sector shares a higher number of similar capabilities with sectors in which the country is already internationally competitive. Last, we find complementarities between the sectors with import substitution episodes and those that achieved the status of export surge episodes during the same period (2003–2008). In this sense, and in contrast to the traditional consensus view about import substitution policies, we do not observe any tension between developing sectors for the domestic market and the incentive to export growth when the level of the RER is used to promote growth and diversification in the tradable sector. • We examine how the real exchange rate influences the occurrence of import substitution episodes in a developing economy. • We develop an episode detection algorithm to identify significant reductions in sectoral imports while controlling for changes in aggregate income. • We find that a competitive and stable real exchange rate significantly boosts the likelihood of import substitution episodes in labor-intensive sectors. • Import substitution episodes are more frequent in sectors where the economy already possesses relevant capabilities. • Using the RER to promote growth and diversification in the tradable sector does not create conflicts between developing import-competing sectors and promoting export sectors. [ABSTRACT FROM AUTHOR]

The relationship between private and public money has shaped the economic and legal debate over money for centuries. Private money can either compete with or complement public money and this depends on the applicable law and the relative powers of the State and private parties. The rise of disruptive digital and cryptographic technologies applied to money creation has the potential to innovate this century-long debate. This article proposes a framework to analyse the role of the law in the relation to the risks and benefits of having circulating private money competing with public money. Accordingly, the article highlights the unprecedented threat to monetary sovereignty, the risks to systemic stability and, ultimately, to democratic decision-making prompted by digital private money. To counter these risks while seizing potential efficiency gains generated by novel forms of private money, the article proposes to regulate convertibility and fragment by regulation such a potentially global market. [ABSTRACT FROM AUTHOR]

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When do governments impose costs on foreign firms? Many studies of foreign direct investment focus on incentives for government expropriation, but scholars are often forced to rely on indirect measures of expropriation to conduct empirical analyses. This article introduces a data set which includes information on over 5,000 political risk insurance contracts issued by the US Overseas Private Investment Corporation since 1961, and on all the claims filed by investors under these contracts. These detailed insurance data allow us to study the determinants of foreign investors' losses from a variety of sources, including expropriation, inconvertibility, and violent conflict. To illustrate the benefits of these data for hypothesis testing, we adopt a comprehensive empirical approach and explore both shared and distinct causes across risk categories. [ABSTRACT FROM AUTHOR]

This paper explores sources of deposit dollarization unrelated to standard moral hazard arguments. We argue that the equal treatment of peso and dollar claims on a bank in the event of default can induce banks to attract dollar deposits above the socially desirable level. The distortion arises because dollar depositors are the only source of default risk in the model, but they share the burden of the default with peso depositors as interest rates cannot be set contingent to the (unobserved) level of deposit dollarization.The incentive to dollarize is reinforced by common banking system safety nets such as deposit and bank insurance. Our findings suggest that regulators in bi-currency economies should depart from the currency-blind benchmark and instead distinguish across currencies in a way that prevents undesirable currency mismatches, even in the absence of moral hazard related to the relaxation of market discipline. [ABSTRACT FROM AUTHOR]

We demonstrate analytically and empirically that valuing a firm with foreign operations in the presence of exchange rate uncertainty requires information on the foreign operating cash flows disaggregated by currency and persistence. In particular, given consolidated earnings, investors need information on the exchange gain or loss on permanent foreign operating cash flows. We extend the model to show how the permanent foreign cash flows can be used to condition the change in the translation adjustment to make it value-relevant; however, using the permanent foreign cash flows directly is superior for valuation purposes. The empirical tests support our hypothesis that the market response to exchange rate movements is sensitive to the relative magnitudes of revenues and costs denominated in each foreign currency in which a firm has transactions. Disclosure of cash flows by currency should enhance the valuation of firms with foreign operations. [ABSTRACT FROM AUTHOR]

A tendency to implement national currencies in foreign trade settlements on a wider scale reflects a multipolar essence of the modern world. It is quite logical and natural result of increasing risks lately connected with the key world currencies. Different countries are interested in reducing dependence on the international currency and financial markets when global geopolitical situation is getting worse.The article examines prerequisites and preconditions for expanding the scope of implementation of national currencies in foreign trade settlements between different countries. The analysis of practical experience of implementation of national currencies in foreign trade settlements has allowed to highlight the «bottlenecks» and problems hindering more active implementation of national currencies by the national participants of foreign economic relations. Current trends and perspectives of implementation of national currencies in foreign trade settlements are discussed in general terms by taking into consideration Russian rouble and Renminbi.The analysis substantiates the need to eliminate existing law, administrative, financial and economic barriers hampering the national participants of foreign economic relations to efficiently conduct business activities in the domestic financial markets, and to ensure favourable market conditions by the national financial institutions.

In 1797 the British government relieved the Bank of England of the obligation to pay specie for its notes upon demand; then, after bitter debate and sustained inflation, it restored this burden in 1821. The episode is studied as the "Bullion Controversy", and it is commonly assigned high significance in the development of monetary theory. Yet the Bank stood as an old target for so-called "country" thought, which suspected commerce of corroding virtue and undermining the proper functions of Parliament. Both the Bank and the Whig regime that created it in 1694 had withstood such attacks, but in the nineteenth century these critical voices were joined by political economists who reworked the existing lines of attack, above all by presenting themselves not as defenders of an ancient virtue but as the champions of a modern, commercial society that was being endangered by the government's and the Bank's ignorance and self-interest. This paper thus examines the Bullion Controversy in relation to the history of political thought, and reveals how the return to convertibility represented an early victory for political economy's self-styled "theorists" in reforming the state's institutions in the nineteenth century. [ABSTRACT FROM AUTHOR]

Currency crises are a significant feature of the present-day world economy, in which financial transactions are many times larger than monetary flows in the "real economy", so that defending a currency's exchange-rate is a major challenge for the governments of countries which may be smaller than a single large corporation. It is made even more difficult due to the United States government and its agents openly using economic pressures to try to force other countries to obey its orders, even including regime change. Guaranteed convertibility of a currency, such as maintaining a gold standard, can in principle help to stabilise its value, but this has been absent since the end of US dollar convertibility in 1971. The Grondona system of conditional currency convertibility was not planned as a counter-measure for currency crises. However the simulation of its operation demonstrated in this paper shows clearly how its automatic counter-cyclical stock-holding in response to movements in commodity prices--and so to exchange-rate movements that alter domestic commodity prices--causes monetary flows that would resist large exchange-rate movements (among other effects), and thereby tend to ameliorate a currency crisis. Moreover, it would achieve this without the need for international negotiations, agreements or other geopolitical trade-offs. [ABSTRACT FROM AUTHOR]

The article examines the effect of currency substitution on liquidity, interest rates, and monetary policy. The authors qualitatively analyze the impact on government seigniorage of various degrees of dollarization. They used economic data from Israel between 1978-1988 to test the restrictions imposed by an optimizing model of currency. The results indicated that the degree of dollarization may have a significant impact on government seigniorage, which, in turn, provokes steady-state changes in the rate of inflation.

The article presents the feasibility study of a proposed inflation-proof currency, that is, a currency whose value is tied to the value of a defined basket of goods. Results of the study show that indirect convertibility is inoperable if the currency in question is the common medium of account for quoting prices of goods. The authors do not think it is possible to correct the price of the basket of goods by varying the redemption rate of currency. Their analysis is mainly a critique of the work of Robert Greenfield and Leland B. Yeager.

This article discusses the share of the largest bank note denomination in a country's currency circulation. In many nations there is a large percentage of high value bank notes in circulation, much higher than is commonly used in most transactions. The authors examine specifically the Dutch florin and the impact on macroeconomic variables. To do so, they construct a nonstandard survey to examine microeconomic evidence and how it fits in with prevailing economic theory. They found evidence of the hoarding of currency.

The behavior of quote arrivals and bid-ask spreads is examined for continuously recorded deutsche mark-dollar exchange rate data over time, across locations, and by market participants. A pattern in the intraday spread and intensity of market activity over time is uncovered and related to theories of trading patterns. Models for the conditional mean and variance of returns and bid-ask spreads indicate volatility clustering at high frequencies. The proposition that trading intensity has an independent effect on returns volatility is rejected, but holds for spread volatility. Conditional returns volatility is increasing in the size of the spread. [ABSTRACT FROM AUTHOR]

The article discusses aspects of international portfolio choice. In international portfolio models nations are defined as zones of common purchasing power units or as subsets of investors who use the same price index in deflating their anticipated monetary returns. Nations may further be separated by sovereignty of taxes and border controls, which constrain private financial transactions between countries. Analysts say nations can be meaningfully distinguished by Purchasing Power Parity deviations. It is reasonable to surmise that investors residing in different countries have different yardsticks for measuring real returns and risks.

The article focuses on avoiding risk from exchange rate variations with a hedged portfolio and on the potential of a forward exchange market. Cross-elasticities between foreign currency movements are known, so a portfolio can be theoretically hedged against variations in currency values. The hedged portfolio can be developed with open positions in all currencies and covered by a single forward contract. The limits of this type of hedging are affected by uncertainty and stochastic cross-elasticities. Purchasing power parity and the Fisher Equation are mentioned as a means of calculating real wealth that is unaffected by changes in the exchange and inflation rates.

The period since February 1973 provides the first opportunity since the 1920's to evaluate substantial experiences with floating exchange rate system. With the exception of Canada in the 1950's, the prior experience with floating rates has been limited to the brief interludes, largely interim floating toward new parities. Since the period is transitional from a pegged system to a floating system, the evidence may not be typical for a longer period. This paper examines whether the major advantages attributed to floating rates have been realized. The next section reviews the traditional arguments about floating exchange rates. The characteristics of the rate movements in the spot exchange rate regimes in the last several years are then examined. Finally, the impacts of the changes in the exchange rate on the domestic economies are considered. [ABSTRACT FROM AUTHOR]

Over the past decade a substantial amount of literature has evolved pertaining to the determinants of the money stock. It is widely recognized that the money stock is jointly determined by the action of the monetary institutions, through their control of the ratio of reserves to deposits and the monetary base, and the nonbanking sectors, through the public's desired proportions of currency and deposits. While the monetary authority's ability to control the reserve ratio, monetary base, and as such, the money supply has been hotly debated, relatively few economists have given explicit, formal attention to the currency ratio over time. Furthermore, economists such as Boris Pesek (1970), James Tobin (1963), and Allen Meltzer (1969) have stated that those studies of the currency ratio that do exist are basically of a verbal and ex post speculative nature. Lack of knowledge of the determinants of the currency ratio remains one of the large gaps in our understanding. This paper presents a theoretical and statistical analysis of the determinants of the currency-demand deposit ratio for the United States. Unlike previous studies of the demand for currency relative to demand deposits, this study takes explicit account of a positive rate of return on demand deposits as well as the interrelation between currency, demand deposits, time deposits and other market securities. Section I is devoted to a comparative static analysis which shows the currency ratio to be positively related to the time deposit rate of return, a market security rate of return, the rate of savings relative to expenditures, and a transaction variable. The currency ratio is shown to be negatively related to the net rate of return on demand deposits. In Section II, real world proxy variables are presented and contemporaneous as well as distributed lag, single equation regression models are appraised for assessing the strength of the above currency-demand deposit ratio effects. [ABSTRACT FROM AUTHOR]

The article presents commentary regarding the feasibility of indirect convertible monetary systems as addressed by Norbert Schnadt and John Whittaker's article from the May 1993 issue. Schnadt and Whittaker's conclusions that the system is impossible due to arguments of redemption medium price divergences is challenged, pointing out logical fallacies within their modeling of falling gold prices and suggesting that bank reserve supply and demand equilibrium will maintain itself. Additional commentary is also given discussing the medium of indirect redemption used with such monetary systems.

The article discusses indirect currency convertibility as a monetary system and its workings. Comparisons are made between periodic adjustment rules of commodity-based price stabilizers and the indirect convertible schemes of media of redemption (MOR) rather than commodity basket equivalence. Common criticisms against indirect convertible models are cited and addressed, highlighting the problem of anchor commodity and MOR divergences in market and bank values. Destabilizing factors of the periodic adjustment scheme are also outlined and deemed more problematic.

Countertrade, offsets, barter, and buybacks have existed since before money was invented but over the last few centuries have been treated as marginal phenomena. However, current estimates of the volume of these activities range from 8 to 30 percent of world trade and could reach 50% by the year 2000. What is surprising is not just the imprecision of the data but the fact that we have no control over this enormous volume of international transactions. This article examines these forms of trade, their causes and policy implications, and their future impact on our open trade system. [ABSTRACT FROM AUTHOR]

The article examines the development and operations of two finance and payment settlement systems, the European Monetary Agreement (EMA) and the European Payments Union (EPU). The EMA funds for the European Fund and a multilateral settlements system. It is the designated successor to the EPU, to become effective when some Organisation for European Economic Co-operation (OEEC) charter nations have converted their currencies. The Fund will provide its members with credit in order to help them with balance of payments conflicts.

The article presents commentary on the addresses "Convertibility--the Current Approach," by George H. Willis and "Convertibility and the Business Community," by Donald F. Heatherington, both included within the issue, discussing the relationships between currency convertibility and business finance. Heatherington's conclusions are reviewed and supported but comments are given regarding the errancy of pursuing a risk free condition before establishing the monetary regime. Willis' theories are further illustrated with several examinations into European nations and their inflation issues. Additional extensions are also offered to discussion points first raised by Raymond F. Mikesell evaluating the above reports.

The president of Russian Federation V. Putin's Order from the 10th of March 2015 to the Government and Central Bank of Russia to work on the plan of creating Monetary Union of EAEU by the 1st of September cannot be ignored by scientific community's attention of Russia and other Eurasian countries. Strategic goal of this document is pretty clear - to create an island of currency stability in the surrounding of Jamaica's Monetary nonsystem and existing monopolar and assimetric world's dollar order, to minimize the dependency of Eurasian countries on US dollar, to hold its world expansion, to freeze the process of financing of USA imbalances by all countries, to turn back the process of dollarization of Eurasian countries and world's dollarization and relieve the world's community from future financial crises. The world's financial and economic crisis of 2008-2010 has clearly shown that US monetary, credit and banking system has become a permanent source of future turmoil of world's scale. It creates a necessity to activate the process of monetary integration of countries on the regional level and transformation of the modern Jamaica's world's dollar standard into the world's multipolar monetary standard. In this article the author analyses he stages of setting up the Eurasian regional monetary order from the creation of multilateral settlement system using common regional currency unit to the introduction of Eurasian currency system with Eurasian currency unit, which can be transformed in the future into the Eurasian Economic and monetary union with common regional currency (euras), which can restrict the world's monopoly position of the dollar.

The president of Russian Federation V. Putin's Order from the 10th of March 2015 to the Government and Central Bank of Russia to work on the plan of creating Monetary Union of EAEU by the 1st of September cannot be ignored by scientific community's attention of Russia and other Eurasian countries. Strategic goal of this document is pretty clear - to create an island of currency stability in the surrounding of Jamaica's Monetary nonsystem and existing monopolar and assimetric world's dollar order, to minimize the dependency of Eurasian countries on US dollar, to hold its world expansion, to freeze the process of financing of USA imbalances by all countries, to turn back the process of dollarization of Eurasian countries and world's dollarization and relieve the world's community from future financial crises. The world's financial and economic crisis of 2008-2010 has clearly shown that US monetary, credit and banking system has become a permanent source of future turmoil of world's scale. It creates a necessity to activate the process of monetary integration of countries on the regional level and transformation of the modern Jamaica's world's dollar standard into the world's multipolar monetary standard. In this article the author analyses he stages of setting up the Eurasian regional monetary order from the creation of multilateral settlement system using common regional currency unit to the introduction of Eurasian currency system with Eurasian currency unit, which can be transformed in the future into the Eurasian Economic and monetary union with common regional currency (euras), which can restrict the world's monopoly position of the dollar.

We discuss currency volatility as a measure of currency instability using 15 currencies from developed and emerging economies. The IMF and others have recorded how countries manage their exchange rates to promote sustainable economic growth by designing exchange rate regimes as a pillar within economic policy. The findings herein show how to track currency instability using a given currency's volatility against the volatility of a benchmark currency of importance to the given currency. This is termed relative volatility. The study proceeds to test whether the parity factors and country risk factor are significantly correlated with exchange rate relative volatility. [ABSTRACT FROM AUTHOR]

Copyright of Realidad Economica is the property of Realidad Economica and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Las estrategias nacionales a las que ha llevado la crisis financiera mundial para impulsar el crecimiento económico han inducido a desequilibrios monetarios entre los países industriales y las economías emergentes. Al implementar políticas monetarias ultraexpansivas, los primeros empujan a la baja las tasas de interés, mientras que al introducir políticas monetarias más restrictivas, las segundas incrementan esas tasas de interés, generándose así un creciente acarreo de divisas. Surgen entonces condiciones de vulnerabilidad por la salida súbita de estos capitales o por los altos costos que implica protegerse contra tal eventualidad por medio de la acumulación de reservas. En este trabajo se calcula que la acumulación de reservas ha tenido un costo promedio anual del 1,83% del PIB entre 2008 y 2014, lo que lleva a concluir que la libre movilidad de capitales que practican las autoridades mexicanas entraña un alto costo para cumplir con las reglas de la globalización financiera. [ABSTRACT FROM AUTHOR]

We show that a version of Martin-Löf type theory with an extensional identity type former I, a unit type N1, Σ-types, Π-types, and a base type is a free category with families (supporting these type formers) both in a 1- and a 2-categorical sense. It follows that the underlying category of contexts is a free locally cartesian closed category in a 2-categorical sense because of a previously proved biequivalence. We show that equality in this category is undecidable by reducing it to the undecidability of convertibility in combinatory logic. Essentially the same construction also shows a slightly strengthened form of the result that equality in extensional Martin-Löf type theory with one universe is undecidable. [ABSTRACT FROM AUTHOR]