Balance in the exchange rate

[yota691]

Balance in the exchange rate

Tuesday 22nd December 2020 8

 

Muhammad Sharif Abu Maysam 

 

It is difficult to talk about balance in the exchange rate, unless the elements of the market are complete, as talking about balance necessitates the existence of a market in which tools are integrated and relations are formed according to a large package of laws and a strict executive body, in light of economic activity in which all sectors have a role Large gross domestic product, then we can say that this balance is important to attract investment. 

And balance means first recognizing the mechanism of floating the local currency, and this mechanism that takes its absolute form in advanced industrial economies, and is subject to the mechanism of orbiting floatation in emerging economies, requires the existence of real sectors and sectors that support them that contribute in their entirety and significantly to the gross domestic product, and limit the flow of foreign currency to finance Foreign trade, which necessarily leads to a decrease in unemployment rates in the labor market, and contributes to reducing the phenomenon of inflation and price fluctuations. Hence, we need systematic support for the national private sector, as long as the investment environment remains anxious and not attractive to investment, despite what is said about it being a promising environment.  

The mechanism for controlling the stability of the exchange rate is not related to the use of the central bank’s reserves only, without the existence of an active economy capable of meeting the overall demand, as the role of the monetary authorities is reduced in the area of intervention to reduce price fluctuations, or the national currency is exposed to major declines, then The monetary authority injects foreign currency and sells it against the local currency, and when the exchange rate stabilizes, it may buy foreign currencies against the local currency.

This mechanism necessitates stability in the nature of market movement, the regularity of the rhythm of productive activities and the recording of growth rates that enable those in charge of drawing the monetary policy to take decisions in line with the inflows of hard currency into the interior, and compare the costs of locally produced goods with the prices of imported counterparts according to a correlation that protects the local product from the rise The cost of the locally produced unit in terms of the minimum balance between the quantities of imported goods versus their locally produced counterparts, otherwise, leaving the market in favor of aggregate demand without the presence of real economic sectors will give speculators great opportunities to make profits at the expense of the consumer price, which will push up inflation rates. It creates a further decline in the value of the local currency and cash reserves without leading to monetary stability that contributes to attracting investment.

 

[Theos]

This does not sound good for us. 

[justchecking123]

Great article 👍.