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Not to mention that pegs always fail in the land of financial markets anyhow [1]. Interest rate pegs, currency pegs, pegs to commodities e.g. gold tend to colla

Not to mention that pegs always fail in the land of financial markets anyhow [1]. Interest rate pegs, currency pegs, pegs to commodities e.g. gold tend to collapse in the long run because they create a "perfect trade". When the value of two separate things eventually diverge due to external market forces, you can take advantage of the peg by trading the less valuable item for the more valuable item at the historical peg. In the context of Facebook being pegged to a basket of international currencies, the peg to each will need to be reevaluated frequently as the currencies fluctuate and arbitrage opportunities increasingly cost the peg-guarantor money to uphold the peg. These fluctuation can be cancelled by derivative contracts e.g. currency swaps, but those cost premiums to maintain and periods of volatility can get very expensive. [1] https://www.google.com/search?q=site%3Aarmstrongeconomics.com+pegs+fail https://www.google.com/search?q=site%3Aarmstrongeconomics.co...

ForHackernews 7y ago
All they have to do is make it expensive and/or inconvenient to arbitrage against them. Some minimal transaction fees would probably kill the ability to make money exploiting small tracking errors.
nickles 7y ago
> Not to mention that pegs always fail in the land of financial markets anyhow... In the context of Facebook being pegged to a basket of international currencies, the peg to each will need to be reevaluated frequently as the currencies fluctuate and arbitrage opportunities increasingly cost the peg-guarantor money to uphold the peg. Assuming that Facebook is the sole issuer and redeemer of the coin, this is a nonissue. By backing the issued coin 1:1 with reserves according to the composition of the basket, Facebook can redeem any coins at face value. Hong Kong, for example, maintains a currency pegged to USD backed entirely with USD holdings. As an aside, your source, armstrongeconomics.com, may not have the best credibility: "In 1999, Japanese fraud investigators accused Armstrong of collecting money from Japanese investors, improperly commingling these funds with funds from other investors, and using the fresh money to cover losses he had incurred while trading. United States prosecutors called it a three-billion-dollar Ponzi scheme... Armstrong admitted to deceiving corporate investors and improperly commingling client funds—actions that according to prosecutors resulted in commodities losses of more than seven hundred million dollars—and was sentenced to five years in prison." [0] https://en.wikipedia.org/wiki/Martin_A._Armstrong https://en.wikipedia.org/wiki/Martin_A._Armstrong
- joeyrideout 7y ago
  I am aware of his past and still believe that he is the best in the world at what he does. His historical and financial insight is unmatched.
deleted 7y ago
[deleted]
pault 7y ago
I spent a few years in Belize, and their currency is pegged 2:1 to the USD. Given the size, capability, and general competency of the Belizean government I always felt it was a major catastrophe just waiting to happen. Worse, nobody there seems to be remotely aware that this is a very risky way to manage your currency. If it were to collapse it would be a terrible blow to an already struggling country. Like diaspora terrible.

ForHackernews 7y ago

All they have to do is make it expensive and/or inconvenient to arbitrage against them. Some minimal transaction fees would probably kill the ability to make money exploiting small tracking errors.

nickles 7y ago

> Not to mention that pegs always fail in the land of financial markets anyhow... In the context of Facebook being pegged to a basket of international currencies, the peg to each will need to be reevaluated frequently as the currencies fluctuate and arbitrage opportunities increasingly cost the peg-guarantor money to uphold the peg. Assuming that Facebook is the sole issuer and redeemer of the coin, this is a nonissue. By backing the issued coin 1:1 with reserves according to the composition of the basket, Facebook can redeem any coins at face value. Hong Kong, for example, maintains a currency pegged to USD backed entirely with USD holdings. As an aside, your source, armstrongeconomics.com, may not have the best credibility: "In 1999, Japanese fraud investigators accused Armstrong of collecting money from Japanese investors, improperly commingling these funds with funds from other investors, and using the fresh money to cover losses he had incurred while trading. United States prosecutors called it a three-billion-dollar Ponzi scheme... Armstrong admitted to deceiving corporate investors and improperly commingling client funds—actions that according to prosecutors resulted in commodities losses of more than seven hundred million dollars—and was sentenced to five years in prison." [0] https://en.wikipedia.org/wiki/Martin_A._Armstrong https://en.wikipedia.org/wiki/Martin_A._Armstrong

joeyrideout 7y ago
I am aware of his past and still believe that he is the best in the world at what he does. His historical and financial insight is unmatched.

deleted 7y ago

[deleted]

pault 7y ago

I spent a few years in Belize, and their currency is pegged 2:1 to the USD. Given the size, capability, and general competency of the Belizean government I always felt it was a major catastrophe just waiting to happen. Worse, nobody there seems to be remotely aware that this is a very risky way to manage your currency. If it were to collapse it would be a terrible blow to an already struggling country. Like diaspora terrible.