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Exchange Rate/Currency and the Money Supply

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beste
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Post: #1
Exchange Rate/Currency and the Money Supply

Basically, I want to know:
How to keep a 1<C ratio between 1 and my currency. Is this accomplished by having a MS<GDP or MS>GDP or by letting MS alone? My exchange rate has been slowly moving toward the 1=C point where I am now at $1.01
Also, does Money Reform 1 increase the effectiveness of Monetary Policy since the Gov. has full control over MS?

(MS=Money Supply)
(GDP=Gross Domestic Product)
( C= currency)

Any tips or inputs will be welcome.


"I do not wish to think, or speak, or write, with moderation. . . . I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD." - William Lloyd Garrison, Abolitionist
26.05.2010 13:52
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Hemothep
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Post: #2
RE: Exchange Rate/Currency and the Money Supply

Money is basicly a produkt like any other else. If you have a trade deficit you will export more money then buying from foreign states and your currency will drop. If you have a trade surplus the opposite will hapen.
Now take your Inflation and economic growth into account and you get your currency rate.

Or for short: the recipy for a valueable currency

- high exports
- low imports
- high economic growth
- low inflation

This post was last modified: 26.05.2010 14:57 by Hemothep.

26.05.2010 14:55
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Sheep
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Post: #3
RE: Exchange Rate/Currency and the Money Supply

Cutting the money supply will lead to a higher currency. At one of my states the currency passed the 3$ line:

http://www.ars-regendi.com/state/43915/show.html

The money supply cuts can be watched here:

http://www.ars-regendi.com/jpbase.php?ty...2&id=43915


26.05.2010 15:07
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Jakerp
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Post: #4
RE: Exchange Rate/Currency and the Money Supply

beste Wrote:
Basically, I want to know:
How to keep a 1<C ratio between 1 and my currency. Is this accomplished by having a MS<GDP or MS>GDP or by letting MS alone? My exchange rate has been slowly moving toward the 1=C point where I am now at $1.01
Also, does Money Reform 1 increase the effectiveness of Monetary Policy since the Gov. has full control over MS?

(MS=Money Supply)
(GDP=Gross Domestic Product)
( C= currency)

Any tips or inputs will be welcome.


Exchange rate of your money comes from the fact that how much foreign investors trust purchasing power of your money. If your country’s central bank prints too much money trust decrease and value of your money decrease because trust decrease. If investors think money of some country is like paper that could not buy anything in real life then value collapses next to zero. This could happen if you release way too much money.

Central banks create money out of nothing money only have value becouse people think in their imagination that money have some value it makes life easier to use it for trading and only value of the economy guarantees purchasing power of money. Value of economy means everything that is produced inside country economy and value of all foreign currencies and gold reserves that are deposited inside central banks foreign currency reserves.

If foreign investors think that your money supply is too high compared value of your economy (GDP) and capital reserves then price of your money lowers and if there is a lot of GDP to backup value of the money it increases.

Value of the money decrease if central bank releases too much money compared to real growth of economy and increase if central bank release too few money compared to real growth of economy.
If you think why central banks create money out from nothing, answers is because providing money to economy makes it a lot more easier people to work and trade between each other. It not perfect system but it’s better than natural economy.

26.05.2010 18:23
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Helsworth
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Post: #5
RE: Exchange Rate/Currency and the Money Supply

That's why in real life the treasury department should be responsable for the stability of the currency and not the central bank, which is a quasi private bank. But in order for money to do what it was initally created to do, we must pierce the illusion of monetarism, the idea that money is the measure of real value, and that it has no intrinsic value and neither does gold or silver. These metals should be used as a reference point for currencies, and in no legal way should speculators be allowed to influence the physical economy through currency manipulation;
On topic:
Keep a reasonable balance between your GDP and MS if you don't want big fluctuations, but also feel free to experiment Wink


https://www.patreon.com/SerbanVCEnache
26.05.2010 18:44
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beste
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Post: #6
RE: Exchange Rate/Currency and the Money Supply

I was thinking of lowering the MS to around 10% less than GDP. If money is like a product, than the supply/demand laws should cause the value(price) to increase. I high demand with a decreasing supply will raise the MS.

Also, about the Money Reform I , does it increase the effectiveness my monetary policies? I know MR 2 kills an economy, but does MR 1 give me (the Central Bank) more control over my economy.


"I do not wish to think, or speak, or write, with moderation. . . . I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD." - William Lloyd Garrison, Abolitionist
27.05.2010 12:37
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Jakerp
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Post: #7
RE: Exchange Rate/Currency and the Money Supply

beste Wrote:
I was thinking of lowering the MS to around 10% less than GDP. If money is like a product, than the supply/demand laws should cause the value(price) to increase. I high demand with a decreasing supply will raise the MS.

Also, about the Money Reform I , does it increase the effectiveness my monetary policies? I know MR 2 kills an economy, but does MR 1 give me (the Central Bank) more control over my economy.


Yes I think but it also increase negative effects if you do something wrong in your monetary policy.

27.05.2010 13:08
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vrmcardoso
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Post: #8
RE: Exchange Rate/Currency and the Money Supply

I only just started playing and I dont know much about this game, but I do know a few things about macro economy.

First, it is false that central banks create money out of nowhere or nothing. They lend money to private banks by buying financial products like insurances etc. Money is only created in case a private bank asks for a loan. They control money supply by adjusting the interest rate at which they lend the currency.
Money being legal tender doesnt mean it is worthless. Your central bank has many financial actives from the private banks they lent money to. So your coin IS worth something, it just isnt redeemable.

what you should know about your exchange rate is that it has massive impact on your exports and imports. You want to import from country with cheap money. So, if your money is too expensive your exports can decrease. However, having cheap money can also be bad, because it will make your imports more expensive.
As you can see in economics things are never simple, there is always a backside to every decision and you must weigh every possible outcome... Meaning, no simple answer to "How much should my money supply be?"

27.05.2010 15:46
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