Goods, along with services,
continue to play a key role in the evolution and dynamics
of money and monetary operations. In this process, the
addition of variables such as `exchange rate' and `interest
rate' signify the continued importance of `goods'. Interestingly,
while gold, silver and oil undisputedly hold important
positions in assessing the value of money, the evolution
of `currency' itself as `goods' has added a new dimension
to monetary operations.
Quite
rightly, studies in this area have been labeled as `puzzles'.
The paper, "The Commodity Currency Puzzle",
by Hilde C Bjørnland and Håvard Hungnes explains
the phenomena of Purchasing Power Parity (PPP), the manner
in which real exchange rates behave and the place of a
primary commodityoil in this case, which determines the
creation of the `puzzle', and subsequently the method
to solve the same. Clearly, the importance of `goods'
playing a deterministic role in assessing the value of
money in the monetary economics of 21st century
has to be conceded.
Another
link between `money' and `goods' is explained further,
while determining the value of a currency by the extent
of goods bought. This view has been put under a scanner
by John J Heim in his paper, "Does the Exchange Rate
Really Affect Consumer Spending?" The paper establishes
the relationship between goods and money even as it examines
the marginal changes in imports or exports of goods and
services due to changes in the exchange rates. This study
pertains to the US and the period covered is from 1960
to 2000. The paper also confirms the relationship present
in determining the exchange rates between two currencies
through the `goods' model and the `currency' model. The
paper also lends credence to the basic idea that relationship
between `goods' and `money' gets complicated in the arena
of international trade with multiple trading partners.
Regarding
the other major variable in the `the new barter system'
the paper, "Bank Rate and Interest Yield Differentials
as Determinants of Foreign Exchange Rate in India",
by Mita H Suthar provides enough evidence to appreciate
the need and the role of `interest rate' in establishing
a relationship between `goods' and `money'. The paper
also reaffirms the importance of the role of government
and the central bank of a country in managing the monetary
situation. These empirical studies should prove to be
useful for the policy makers.
The
consequences of `mismanagement', against the background
of the prevailing complexities of an inter-related global
monetary system would most probably have a ripple effect.
This could emanate from either emerging economies or even
developed financial systems that might slip off government's/central
bank's watchful eyes. The paper, "Emerging Asia's
Growth and Integration: How Autonomous are Business Cycles?",
by Rasmus Rüffer, Marcelo Sánchez, and Jian-Guang
Shen, provides material to debate on the issues of economic
growth and integration of financial markets. The paper
captures the highs and lows of economic development, disparities
between the rich and the poor, and the `shocks' as a result
of such differences; and all these at a time when the
monetary world is uncertain where from the water of destabilization
would start flowing and most importantly, where it finds
its level in the wake of the `sub-prime crisis'.
-
Y G Sivaram,
Consulting Editor .
