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>If there is enough to exchange for the price that is claimed, then a billionaire can't break the peg by exchanging out pounds and forcing their hand. Sure, do

by matz1 7y ago

>If there is enough to exchange for the price that is claimed, then a billionaire can't break the peg by exchanging out pounds and forcing their hand. Sure, doesn't mean that there is no other way to break it.

BubRoss 7y ago
What do you mean by 'break' and how would it happen?
- ummonk 7y ago
  If the currency is priced at fair value but the country is small and thus has proportionate reserves, a multi-billionaire could simply pump all his money into pushing the currency out of its declared price range, causing a loss of trust in the currency, resulting in a further slide of the currency. That isn't what happened here of course, but it could happen to a smaller country trying to maintain a pegged currency.
  - BubRoss 7y ago
    It isn't what happened here because that doesn't happen anywhere. Putting more money into a currency makes it worth more. If a currency is backed by something else, you buy more of it as your currency is bought. That's how pegs work, the currency is an IOU for something else. Insolvency happens when a financial institution says they have more than they do and someone withdrawals enough to call their bluff. You don't 'break' a currency or financial institution by pumping money into it.
    - ummonk 7y ago
      You don't pump money into purchasing the currency. You pump money into shorting the currency, as Soros did here.
      - BubRoss 7y ago
        A short is just a method of selling first and buying later. This doesn't destroy a currency that is properly backed or a financial entity that is solvent. It only forces an organization that doesn't have what they say they have to eventually admit it. The person replying to me was saying that it didn't matter if an organization was healthy or not - a billionaire could still 'destroy' or 'break' it, but they weren't able to give an example of how that would happen despite repeating the same claim multiple times.

by matz1 7y ago

BubRoss 7y ago

What do you mean by 'break' and how would it happen?

ummonk 7y ago
If the currency is priced at fair value but the country is small and thus has proportionate reserves, a multi-billionaire could simply pump all his money into pushing the currency out of its declared price range, causing a loss of trust in the currency, resulting in a further slide of the currency. That isn't what happened here of course, but it could happen to a smaller country trying to maintain a pegged currency.
- BubRoss 7y ago
  It isn't what happened here because that doesn't happen anywhere. Putting more money into a currency makes it worth more. If a currency is backed by something else, you buy more of it as your currency is bought. That's how pegs work, the currency is an IOU for something else. Insolvency happens when a financial institution says they have more than they do and someone withdrawals enough to call their bluff. You don't 'break' a currency or financial institution by pumping money into it.
  - ummonk 7y ago
    You don't pump money into purchasing the currency. You pump money into shorting the currency, as Soros did here.
    - BubRoss 7y ago
      A short is just a method of selling first and buying later. This doesn't destroy a currency that is properly backed or a financial entity that is solvent. It only forces an organization that doesn't have what they say they have to eventually admit it. The person replying to me was saying that it didn't matter if an organization was healthy or not - a billionaire could still 'destroy' or 'break' it, but they weren't able to give an example of how that would happen despite repeating the same claim multiple times.