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It's difficult to maintain a peg when it starts to become unsustainable and the big players start to bet against you. Reminds me of when Soros took on the Bank
by not2b 4y ago
It's difficult to maintain a peg when it starts to become unsustainable and the big players start to bet against you. Reminds me of when Soros took on the Bank of England and won: they were trying to peg the value of the pound using the European Exchange Rate Mechanism (the precursor to the Euro). These guys can use up all their capital easily.
- ShamelessC 4y agoOf course it's hard. Perhaps they should have thought about that before trying to be a middleman in a grifter's market.
- Mo3 4y agoI’m sure they thought about it a lot. Thinking alone doesn’t really help if you dont know shit about finance.
- ShamelessC 4y agoRight and grifting only works if you don't get caught.
- 323 4y agoThe pound peg broke because the price it was pegged at was fundamentally mispriced. The mispricing was the problem, not the pegging. Bulgaria pegged it's currency to the Euro for more than a decade now. And the peg is solid. There are a few more countries with solid pegs - Denmark, Hong Kong.
- lutorm 4y agoAll pegs are solid until they break, though. Unless the two currencies are affected exactly equally by all events and treated exactly equally by everyone, there is no single price that won't eventually be "fundamentally mispriced".
- neilwilson 4y ago"The pound peg broke because the price it was pegged at was fundamentally mispriced." The pound peg broke because the other side of the peg with infinite capacity - the Bundesbank - refused to undertake their part of the bargain, buying pounds for new DMs. Pegs can only be stable if each issuer takes out the excess liquidity when the price moves in their direction. No currency can stabilise itself by selling foreign. It can only stabilise itself by suppressing an increase in its own value with devaluation - as we can see recently with the Rouble. In other words currencies can only cap, they can't collar.
- retcon 4y agoSchlesinger, Bundesbank President tipped Soros to boot.
- umeshunni 4y agoFor a more prominent example, most gulf countries peg their currencies to the USD. This chart only goes back 20 years, but the Saudi Riyal has been pegged to USD since 1986 https://finance.yahoo.com/quote/USDSAR=X/ https://finance.yahoo.com/quote/USDSAR=X/ https://www.bis.org/publ/bppdf/bispap73v.pdf https://www.bis.org/publ/bppdf/bispap73v.pdf
- yxhuvud 4y agoCurrency values shift over time. Hence any pegging is a problem as inevitably there will be mispricing.