Some questions about trade reserve and FX
- From: "Brablo" <gestureofrespect@xxxxxxxxx>
- Date: 21 Dec 2005 06:04:31 -0800
This is from wikipedia.org: "A reserve currency, also called an anchor
currency, is a currency which is held in significant quantities by many
governments and institutions as part of their foreign exchange
reserves. It also tends to be the international pricing currency for
products traded on a global market, such as oil, gold, etc. This
permits the issuing country to purchase the commodities at a
significantly cheaper rate than other nations, which must exchange
their currency with each purchase. It also permits the government
issuing the currency to borrow money at a better rate, as there will
always be a larger market for that currency than others."
Here are my questions:
1. Instead of holding significant quantities of other nation's
currencies, why not hold commodities (i.e. the Arabs or Venezuelans
hold their oil as a currency reserve proxy)?
2. Regarding: "This permits the issuing country to purchase the
commodities at a significantly cheaper rate than other nations." - by
how much cheaper can the USA purchase oil and other commodities
compared to other nations? Is this why gasoline in the USA is only
~$2.25/gallon and in the UK it's over $6/gallon?
3. If we're able to borrow at a better rate, then shouldn't this imply
that our interest rates given to bond holders should be less than what
the International Fisher Relation equation (or whatever the "fair
market value" of our dollar should be) should predict?
.
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