Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
I was thinking of currency risk in terms of loss of ability to maintain a peg and subsequent movement of the floating rate.

Of course, loss of ability to maintain the peg is not always distinguishable from loss of willingness to maintain the peg. But it usually is, and I think it is useful to distinguish between the risk of a foreign government deciding to screw your investment over and the risk of a foreign government being unable to decide not to screw your investment over. The latter is a risk which can be forecast with some delicacy. The former is far closer to a Knightian uncertainty.

I find that it usually pays dividends to separate those two sorts of risk.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jul 24th, 2012 at 04:26:31 AM EST
[ Parent ]
In the abstract I guess, but the current pegging regime of China is to peg at a discount against a basket of foreign currencies, which eliminates the risk that they will be unable to maintain the peg. The risks that a creditor raising funds in US$ and having their electricity bought in Yuan Renminbi faces are (1) that China opts to increase the discount at which they are pegging, and (2) that China opts to reduce the weight of the US$ in the currency basket that they peg against, opening up the Yuan Renminbi / US$ exchange rate to greater volatility.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Jul 24th, 2012 at 06:40:19 PM EST
[ Parent ]


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