tag:blogger.com,1999:blog-1513588060557517621.post5036096872136630113..comments2023-03-22T12:40:49.113+01:00Comments on Notes on the Next Bust: On Currency Devaluation (Deliberate and Otherwise)Ari Andricopouloshttp://www.blogger.com/profile/00181838814176635218noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-1513588060557517621.post-28257198835619819792016-11-27T20:49:49.129+01:002016-11-27T20:49:49.129+01:00To the first part, I think yes, reserve currencies...To the first part, I think yes, reserve currencies do benefit in that they receive savings from abroad that realistically never get called back. So in this sense the UK is given more consumption. There is always the risk that the situation reverses, of course.<br /><br />With the Brexit situation, there appears to be a prediction that the pound will offer a lower return in future than previously thought. A proxy for this is the real risk free interest rate (for developed sovereign governments this is government bond rate minus expected inflation). The higher this is, the better the country's expected prospects are going forward. The reason for this is that if there were a lot of good opportunities in the UK, people would need more interest from the government to put their money with them instead of taking risk.<br /><br />The prospects for the UK economy will undoubtedly be lower in the medium term after Brexit as there is a lot of turmoil. However, I think a lot of bad stuff is priced in already.<br /><br />Overall, if you want a strong currency, you want am economy that produces high value added goods and services. Being a reserve currency helps too.Ari Andricopouloshttps://www.blogger.com/profile/00181838814176635218noreply@blogger.comtag:blogger.com,1999:blog-1513588060557517621.post-6558365364114986472016-11-27T14:05:06.304+01:002016-11-27T14:05:06.304+01:00So a current account deficit might be conidered de...So a current account deficit might be conidered desireable if it appreciates the domestic currency allowing domestic consumers to import goods and sevice from abroad and enjoy higher living standards from better real terms of trade.<br /><br />Also if I understand you correctly in order to ensure high exchange rates you need to manintain high productivity " The productivity, and expectation of future productivity, of the UK economy fell vs that of the US economy"-is this right<br /><br />So you need foreginers savings coming in(but just not the type of investent that increases asset values)to ensure tat the domestic currency is high.Jakenoreply@blogger.com