Definitions for TrueValueMetrics
Currency Exchange Rate
Currency Exchange Rates. Currency exchange rates have been an element in many national economic crises ... and the issue of wrong currency exchange rates is ongoing.
Few exchange rates are determined by market forces alone. There is a large policy component that is driven by forces outside the pure economic market. The economic analysis that results in policy is, however, far from being proven with any level of scientific reliability. Policy is largely driven by opinion and perception of benefit to key interest groups.
An exchange rate reflects the underlying productivity of the economy ... anything else has to be supported by interventions that are external to the underlying economy. Imbalances of this sort are destabilizing over time and unsustainable.
Countries where the national currency also serves as an international currency usually have conflicting priorities ... does the exchange rate reflect the best for trade or the best for national economic performance ... usually two issues where the best is different.
Exchange rates are rarely managed to benefit the population at large ... it is more usual to have exchange rates that benefit those that are in positions of power and influence.
Inappropriate Exchange Control Profits The example of the Nigerian Naira in the early 1980s is instructive ... an grossly overvalued currency enabled those that had power and influence to profit mightily by doing their transactions at the official rate of exchange while every one had to business using a very different black market exchange rate together with all the issues associated with that.