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> allow some US startup to undermine their currency and distort their financial system How is it undermining a currency and distorting a financial system to al

by JamilD 2y ago

> allow some US startup to undermine their currency and distort their financial system How is it undermining a currency and distorting a financial system to allow people to exchange their OWN hard-earned money for another currency?

kristjansson 2y ago
Trading currencies is basically zero-sum. A VEF/USD seller needs a USD/VEF buyer. That buyer demands some VEF for each USD i.e. the floating exchange rate. In a free market, imbalance in the foreign exchange flows either reduces the exchange rate, or forces the issuer to take action by supporting the market at the desired rate with USD reserves, or offering higher interest rates to attract more dollar demand, etc. All of those are expensive, so some issuers might try to prohibit foreign exchange at rates less advantageous than the desired rate. Circumventing that prohibition (i.e. capital control) lessens its effectiveness. None of which is to say that capital controls are a good thing, but you can understand how a government might want them, and might view circumventions as 'distortions'
tokioyoyo 2y ago
I don't agree with capital controls either, but it's still illegal in some countries. Basically any country where, in my opinion, it would be a good idea to use such services.
- awesome_dude 2y ago
  Currency crisis are quite debilitating https://catalogue.nla.gov.au/catalog/3070732 https://catalogue.nla.gov.au/catalog/3070732 - The Malaysian currency crisis : how and why it happened / Mahathir Mohamad edit: Sorry that first link is for a book This might be better https://www.investopedia.com/articles/economics/08/currency-crises.asp https://www.investopedia.com/articles/economics/08/currency-... second edit - I'll add the relevant paragraph > Anatomy of a Currency Crisis > Investors often attempt to withdraw their money en masse if there is an overall erosion in confidence in an economy's stability. This is referred to as capital flight. Once investors sell their domestic currency-denominated investments, they convert those investments into foreign currency. > This causes the exchange rate to get even worse, resulting in a run on the currency, which can then make it nearly impossible for the country to finance its capital spending.
  - tokioyoyo 2y ago
    That's fine and dandy, and I agree. But it's still illegal to provide means to circumvent the law. Well, depends on the country and enforcement I guess. It's pretty hard to do so.
vosper 2y ago
> How is it undermining a currency and distorting a financial system to allow people to exchange their OWN hard-earned money for another currency? In practice, it's because the government of that country says that it is.
awesome_dude 2y ago
Is that rhetorical, or have you never heard of currency controls and money laundering?

by JamilD 2y ago

kristjansson 2y ago

Trading currencies is basically zero-sum. A VEF/USD seller needs a USD/VEF buyer. That buyer demands some VEF for each USD i.e. the floating exchange rate. In a free market, imbalance in the foreign exchange flows either reduces the exchange rate, or forces the issuer to take action by supporting the market at the desired rate with USD reserves, or offering higher interest rates to attract more dollar demand, etc. All of those are expensive, so some issuers might try to prohibit foreign exchange at rates less advantageous than the desired rate. Circumventing that prohibition (i.e. capital control) lessens its effectiveness. None of which is to say that capital controls are a good thing, but you can understand how a government might want them, and might view circumventions as 'distortions'

tokioyoyo 2y ago

I don't agree with capital controls either, but it's still illegal in some countries. Basically any country where, in my opinion, it would be a good idea to use such services.

awesome_dude 2y ago
Currency crisis are quite debilitating https://catalogue.nla.gov.au/catalog/3070732 https://catalogue.nla.gov.au/catalog/3070732 - The Malaysian currency crisis : how and why it happened / Mahathir Mohamad edit: Sorry that first link is for a book This might be better https://www.investopedia.com/articles/economics/08/currency-crises.asp https://www.investopedia.com/articles/economics/08/currency-... second edit - I'll add the relevant paragraph > Anatomy of a Currency Crisis > Investors often attempt to withdraw their money en masse if there is an overall erosion in confidence in an economy's stability. This is referred to as capital flight. Once investors sell their domestic currency-denominated investments, they convert those investments into foreign currency. > This causes the exchange rate to get even worse, resulting in a run on the currency, which can then make it nearly impossible for the country to finance its capital spending.
- tokioyoyo 2y ago
  That's fine and dandy, and I agree. But it's still illegal to provide means to circumvent the law. Well, depends on the country and enforcement I guess. It's pretty hard to do so.

vosper 2y ago

> How is it undermining a currency and distorting a financial system to allow people to exchange their OWN hard-earned money for another currency? In practice, it's because the government of that country says that it is.

awesome_dude 2y ago

Is that rhetorical, or have you never heard of currency controls and money laundering?