Monday, June 3, 2013

FOREX and some stories of money speculation and currency devaluation

Here you have the link to the FOREX, the Foreign Exchange Market, where the price of all the world currencies is established every day. The value is fixed with respect to the strongest currencies (mainly the euro, the dollar, the yen and the sterling pound). The FOREX  is a decentralized, continuous (it operates 24 hours a day from Monday to Friday) and online market which moves around 3 billion dollars (3,000,000,000,000 dollars) a day. As every other free market, the price of the "products" depends on supply and demand. Most of the transactions are between banks or between banks and other financial companies. 

This is a link to an online game based on the Forex market. You can download it and play the game to learn how your decisions can affect the evolution of the market. I haven't played it. If any of you does, please, tell your experience: 

And this is George Soros' story and how he became very rich attacking the British pound: 

In September 1992 Soros sold 10,000,000,000 sterling pounds and bought German marks and he also spread the rumour that the British pound would lose value. Many other investors sold their pounds and the Bank of England had to spend a lot of money trying to defend the pound from the speculators' attacks. They had to spend 15,000,000,000 pounds to avoid the fall of the value of their currency. Finally, on the 16th September (known as the Black Wednesday in the United Kingdom ), the British government surrendered and left the pound fluctuate in the markets. The pound lost 15% of its value with respect to the German mark and 25% with respect to the US dollar. When the pound was devalued, George Soros used his German marks to buy pounds and earned 1,000,000,000 pounds (1,100,000,000 dollars) with the transaction. This attack to the sterling pound also obliged the UK to leave the European Exchange Rate Mechanism (a system designed to achieve monetary stability in the European Union and prepare the ground for the monetary union). Other European currencies had to be devalued as a consequence of the monetary storm started by Soros: the Italian lira, the Spanish peseta and the Irish pound. 


If you want to learn more about this story, here you have a link to a file in Spanish:

And here you have a short history of the different devaluations of the peseta until 1992. After this date, the peseta was devalued two more times (in 1993 and in 1995):

And finally, here you have a short summary about what happened in Argentina after the so-called corralito in 2001: 

As many Argentinians were sending their savings abroad (flight of capital), the Argentinian government decided to restrict the money withdrawals from banks to 250 dollars per week. This meant that all the bank accounts were frozen and people couldn't have access to their money freely. 

The situation became more serious when the government decided to change the convertibility of the peso with respect to the US dollars in January 2002. Since 1991, 1 peso was equal to 1 dollar. If someone went to the bank and exchanged pesos for dollars, he/she received the same amount of dollars. This meant that if you had 10,000 pesos in the bank, you could exchange them for 10,000 dollars. When the government approved the Convertibility Act in January 2002, the convertibility of 1 dollar was established in 1.40 pesos. As the corralito continued to exist, people couldn't have access to their money. The peso devalued and in March its value was 1 dollar=4 pesos. This meant that your 10,000 pesos, which were equal to 10,000 dollars until January, had become 2,500 dollars. When the corralito ended in December 2002, people had lost 3/4 of their savings. But as the peso had lost a lot of its value, the merchants and providers of services like electricity, water and phone companies had increased their prices or asked for the payments in dollars. This meant that the people became poor overnight. 

At the moment 1 peso= 5.28 pesos in the official market, but as many Argentinians don't trust the economic policy of the government and are afraid of a new corralito, the price of the dollar in the black market is more than 10 pesos. Many Argentinians cross to Uruguay to exchange pesos for dollars (they can buy 1 dollar for 6.5 pesos) and they sell them later in the black market in Argentina. Here you have more information about this;

All these stories show that the big figures hide a lot of individual stories behind. The so called "markets", that is, the individuals who make decisions to earn more and more money, influence the real people's lives and speculation condemns many people to poverty. For those who like Ethics, this is an example of how what is good for some can be very harmful for most people. 

No comments: