The Currency Quandary

Who Caused the Currency Wars?

He decides to sell options on the S P event.

Stock options, too, often stir passionate criticism.

You guys have things here in Silicon Valley like stock options.

World currency standards have enormous inertia.

There have been financial and monetary consequences as well.

The ensuing currency battles are being fought on several fronts foreign exchange intervention, quantitative easing, and capital controls on inflows.

Of course, there is considerable irrationality in currency markets.

Other exchange rates will respond to these shifts.

Can Trade Agreements Stop Currency Manipulation?

Currency frictions can lead eventually to trade frictions, and currency wars can lead to trade wars.

The currency wars themselves are merely a skirmish.

Foreign exchange reserves are an immense 1.9 trillion.

Admittedly, some of the major currency s movements during the past year can be regarded as normalizing.

Official foreign exchange reserves will soon reach US 2 trillion.

The present currency war is but another sign of that disorder.

Second, exchange rates need to reflect economic fundamentals.

In 2003, Venezuela implemented rigorous and complex currency regulations.

And they were willing to work very cheap, for stock options that never came.

Worse, in America stock options became a preferred form of compensation often worth more than an executive s base pay.

But there have been more recent occurrences of nasty currency wars.

Today s trade and currency battles would then become a Kulturkampf.

In the past, foreign exchange markets paid less attention to structural factors.

These are large numbers even for Russia, with its currency reserves of 480 billion.

Others suggest broadening the scope of stock options to include more employees. Some Socialists are more radical, advocating, as Laurent Fabius recently did, the suppression of stock options.

Some Socialists are more radical, advocating, as Laurent Fabius recently did, the suppression of stock options.

They should not stand in the way of compensation that includes stock options, or that otherwise create financial risks for their employees.

But China s rulers know that their highly repressed banking system is vulnerable as the country continues to pursue gradual financial liberalization, and that foreign currency reserves may be needed for recapitalization.

The US Treasury welcomed government intervention in exchange rate markets, and encouraged the IMF to support such interventions with mega billion dollar loans to crisis countries.

Developing nations should also push for a Tobin tax a tax on global foreign currency transactions.

Finally, there is the G 20 s promise to reduce monetary and fiscal excesses in an internationally coordinated way.

Until Argentina's peso imploded, fixed exchange rates were fine.

A bill proposed by former Prime Minister Edouard Balladur seeks to eliminate perverse incentives by barring corporate officers from exercising their stock options until they leave the company.

An executive s inability to cash out shares and options for a substantial period would tie his or her payoff to long term shareholder value. The length of this period should be fixed, and should not depend on actions or conditions that are at least partly under executives control.

Jacques Chirac, more cautiously, stated that stock options should be legally encadrés (framed).

An executive s inability to cash out shares and options for a substantial period would tie his or her payoff to long term shareholder value.

But, even if exchange rates work in mysterious ways, their cushioning effect is undeniable.

Moreover, global currency markets would be disrupted, and the global economy would deteriorate.

Some enthusiastic Europeans encouraged Asians to diversify their reserve holdings.

For surplus countries that want to accumulate reserves, it would reduce exchange rate risk.

Sometimes monetary and fiscal authorities have an obligation to ignore the wilder historical parallels and look at a broader picture.

There have, of course, been many examples in history in which currency unions or single currency states have broken up.

He then sells 100 million covered options, which fetch ten cents on the dollar and thus net 10 million.

Finally, with the government about to exhaust its entire foreign reserves, Yam realized that he had to change course.