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... "real exchange rate."

And I should learn to proofread better.

And it's not quite true that you can't short a currency unless the CB is being a sucker. The CB is just the most common sucker in a Soros attack, but any entity that has domestic currency lying around in large quantities can be the sucker.

Also, if your CB is not committing to defend a lower bound, it should be brokering currency swaps between foreign central banks and domestic firms that are considered to be of strategic importance and require imports of raw materials or intermediate goods. That way, you would minimise disruptions in the event of a Soros attack that you find yourself unable to defend against.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Apr 12th, 2011 at 08:54:52 PM EST
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