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It would certainly add a lot of financial fees and intermediates to inter-eurozone trade, as european industry tries to insure its supply chain against unpredictable currency shifts.

Have the CB act as market maker in currency swaps, at no charge.

Im not sure if this entirely predictable negative would be larger than the positives, but I do know that massive shocks have a strong tendency to not work out well for the common citizen, so as a solution, it sucks.

If you have the CB buy foreign currency in sufficient volume to match gross outstanding domestic hard currency liabilities (and take any bank that helps a Soros attacker naked short your currency out back to be shot), you won't get massive exchange shocks. Unless you have a massive supply-side shock. But if you have a massive supply side shock, the alternative to an exchange rate shock sucks even worse.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 30th, 2012 at 07:46:04 AM EST
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