How many discussions have there been about whether the central bank should influence the exchange rate or allow it to be set by the market? How many times have we heard that when the central bank artificially adjusts the exchange rate, it creates imbalances and inefficiencies that cause significant damage later on?
It is said that the natural market exchange rate arises because products are manufactured in countries with different levels of efficiency and costs, and because demand for these products varies. These products are then exchanged across borders, resulting in an exchange rate that naturally reflects the ratio of productivity. This is how it is understood at mainstream economics universities and in liberal think tanks. And it sounds logical.
It was only at yesterday’s seminar, where I had the honour of delivering an additional presentation, that I realised where the mistake lay. In reality, most financial flows consist of speculative capital, which ignores the real economy and is guided purely by the current mood of investment fund managers. The most in-depth analysis they can perform is the development of an indicator. Money resulting from the exchange of products plays only a marginal role and has no influence on the ‘natural’ exchange rate.
If you think this sounds like fraud, you are mistaken. These economic experts probably have no idea that the real world differs from their ideal model.
After all, not everyone can be an expert in everything.