Economic Agreement with Antica

[Erik Mortis]

http://shireroth.org/forum/viewtopic.ph ... 72#p136072

They want to establish and exchange rate between the Unified Currency (I assume) and their currency.

I was gonna take this to the assembly.. but realized that the Assembly couldn't really speak on the matter, that it was up to the members of the unified currency.

Just a reminder, Antica is not a member of the Commonwealth, which could raise issues of if we can even make such an agreement.

Opinions.

[Andreas the Wise]

This raises questions I knew we'd need to face eventually, so I might as well address the broad range of issues raised rather than just the specific matter of an agreement with Antica.

What follows is a series of economic ramblings; followed by possible solutions to pick from. Feel free to skip the ramblings.

1. Should we sign economic agreements with non-Small-Commonwealth nations full stop?
That is, are we still on a mission to get as many nations into the SC as possible? If so, then we shouldn't sign economic agreements with non-SC nations. If not, then we can.

2. Should we institute fixed currency exchange, and if so, who runs it?
As put in the SCUE treaty, we are not allowed to delete currency from circulation. Handling fixed currency exchange, then, means that normally speaking each government would agree to trade currency at a certain ratio; and would hold reserves of the other nations currency.
Example - if there were an agreement between Shireroth and Gralus (and no SCUE), we might say 1 = 2 GELT.
Gralus would give Shireroth 5000 GELT; and Shireroth would give Gralus 2500 . Then, if a Shirithian wanted GELT, they'd go up to MiniTrade and ask for GELT, and MiniTrade would give take their and give them GELT; and vice versa; and the same for Gralus.
Now, with the SCUE, this gets more interesting. Which government holds the reserves?
Say, for example, Shireroth agrees to do it - then all the SCUE people that want Antican money would go to Shireroth and give Shireroth SCUE currency. But all the Shirithians who wanted to cash in Antican money would also go to Shireroth and give Shireroth Antican money and expect erb. If Antica turns out to be fairly generous with their money (or a rich Antican like Phineas decides to ditch Antica, and just be Benkern in Shireroth, and tries to cash in all their Antican money), then Shireroth might have to pay out a lot of erb, and go bankrupt.
Alternatively, there could be a central fund, but who would initially contribute to said fund? Do we make everyone (even if Nelaga, Natopia and Stormark hate Antica (for examples sake) and don't want their money)?

3. Is the other currency a suitable one to have a fixed exchange rate with?
Mainly, this involves two issues: Do they have a set amount of money, or do they just keep printing more?
If they have a set amount of money, is most of it in circulation?
If the answers to both are yes, the currency is suitable. If the answers to either are no, then we have problems.
In Antica's case, they appear to have a set amount, of which a bazillion is held in the Treasury. If they keep putting more of this out over time, it really messes with exchange rates. If we set a fixed exchange rate based on the amount of money an ordinary citizen has right now, we'd be looking at 1 Antican:50 SCUE. But since they have a bazillion in reserves, they could put an extra 1000 out, and suddenly there's someone demandind 50 000 SCUE off us! Problem, clearly.
Alternatively, if we set a fixed exchange rate based on the amount of money they have in total, we're looking at ~ 200 Antican = 1 SCUE. Which makes all current Anticans phenomenally poorer than any Shirithian has ever been.
To a lesser degree there are tax questions, but if they work on the assumption that any SCUE citizen holding non-SCUE money can't be taxed, that resolves that.

4. Finally, how to set the rate.
I've written on this before. MICEO had a kind of neat system but nobody uses that much anymore ...


Ok, I've given you problems, now solutions. I have 5 Plausible Solutions

Solution 1: No
The Small Commonwealth United Economy NEVER agrees to currency exchange. They have to use our currency or nothing.

Solution 2: Free Market
The Small Commonwealth United Economy NEVER agrees to fixed currency exchange. However, we're happy to allow the market to work (ie let individuals trade currency at whatever rate they choose).

Solution 3: Free Market + Initial Help
The Small Commonwealth United Economy NEVER agrees to fixed currency exchange. However, we'll negotiate an initial exchange of reserves; and then we're happy to allow the market to work (ie let individuals and governments trade currency at whatever rate they choose).

Solution 4: Fixed Exchange Rates (simple and problematic)
We say "screw you, economics" and use a random number generator to set an exchange rate with anyone who asks. We suffer whatever economic woes result.

Solution 5: Fixed Exchange Rates (complex corollaries)
We decide upon an exchange rate suitable for this point in time, and exchange reserves. Within the treaty, we have the ability to re-evaluate the exchange rate when the reserves reach certain levels (possibly happening automatically, using complex formula). This should hopefully prevent any country going bankrupt just because another prints money.

My very heavy preference is for the Free Market option (Solution 2). If you let two individuals agree on an exchange rate, it not only creates a new industry (money changing), but also prevents the problems stemming from "which government" and problems stemming from fixed exchange rates causing bankruptcy. Admittedly, however, this will only work if there are rich dual citizens, or someone interested in managing such a thing. Solution 3 is a possible work around for this.

[Jonas]

This matter is quite actual, also in Batavia. We have a NEVO-treaty with an exchange rate with the other members, this would still be valid when we enter the SC-economy.
Like before, we were planning to add a NEVO-account and place a certain amount of money on it to exhange foreign money. This isn't used much, but officialy exists.
I'm curious what decision will be made in this matter, as it can influence Batavia and the NEVO too.

To be honest, I'm in favour of getting as much nations as possible in the SC-economy. Exchange rates are doomed.

[Andreas the Wise]

So you weren't planning to talk the NEVO nations into joining at the same time as you?

Actually, the NEVO case is fairly easy. We assume Batavia is most interested in NEVO, and so the Batavian Government sets up a reserve they give to the other NEVO nations, and handles all foreign exchange with NEVO. Jonas, you can become a rich money changer handling all English-Dutch transactions

Though, of course, everyone joining SCUE is the most preferential option.

[Jonas]

So you weren't planning to talk the NEVO nations into joining at the same time as you?

Planning: yes. Succeeding: I don't think so. I still hope they will join, but I fear for it.

Actually, the NEVO case is fairly easy. We assume Batavia is most interested in NEVO, and so the Batavian Government sets up a reserve they give to the other NEVO nations, and handles all foreign exchange with NEVO. Jonas, you can become a rich money changer handling all English-Dutch transactions

We have to set money aside, so such an advantage isn't it.

But indeed, this will be the way we'll work with the NEVO when we move to the SC.

Though, of course, everyone joining SCUE is the most preferential option.

I fully agree.

[mbasil]

Option 3 might be acceptable to us; I prefer it because it would help us get off the ground, so to speak, with regards to currency exchange.

The case made by Andreas against a fixed exchange rate was valid, although from my point of view the Antican currency is relatively stable. I consider the "infinite supply of money" managed by the Treasury to be based on some sort of precious natural resource, perhaps gold; and I don't ever expect to use it all at once because I am very stingy with it--so that the economy seems realistic enough. Yet nobody has discussed where the actual limits might be on using that money.

I will discuss the various options listed with other Anticans.

[Jonas]

Stable? In what way: Do you mean inactive?

[Erik Mortis]

From years of experience with exchange rates, I found them to be inherently a problem. If they EVER shift then you can people who can trade money to make money, thus allowing for exchange rates to allow for the creation and destruction of money.

I do not support exchange rates.

Also, This would have an impact of being a new treaty imposed on ALL members of the Unified Currency. The SC was not established to have significant, if any unified diplomacy with non-member nations. Each nation retains it's sovereign ability to make treaties with outside parties. If we wanted to make a treaty with an outside body we would have to make a united diplomacy treaty first. Though I would still oppose exchange rates.

[Malliki Tosha]

I know I might be speaking where I'm not supposed to speak, but we all have our problems, right?

We are not allowed to remove money from the SCUE. Exchanging money with an entity outside the SCUE is removing money from the SCUE. Thus, we are not allowed to exchange money with an outside entity.

I also agree strongly with the point Erik made. The SC is not an organisation with any mandate to conduct diplomacy or foreign policy. Therefore, this issue should originate in one of the member nations as a proposal for a new treaty, alternatively an amendment to the SCUE treaty. All SCUE nations need to be on board, or else we would get a very strange situation indeed, where some nations in the SCUE can exchange with Antica and some nations can't.

The simplest solution would of course be for Antica to join the SCUE...

[Erik Mortis]

You are correct, you aren't supposed to speak here, but meh. I'm not gonna do anything about it. This time!

But yes. Why doesn't Antica just join the SCUE. Solves lots of problems.

[mbasil]

Stable? In what way: Do you mean inactive?

Jonas, if your comment is any indication of your knowledge of Antica's economy, then I must suggest learning more about Antica's economy. Yes, our currency is stable--as opposed to wildly fluctuating. A wildly fluctuating currency would pose significant challenges for either fixed or free market currency exchange.

I do not support exchange rates.

Also, This would have an impact of being a new treaty imposed on ALL members of the Unified Currency. The SC was not established to have significant, if any unified diplomacy with non-member nations. Each nation retains it's sovereign ability to make treaties with outside parties. If we wanted to make a treaty with an outside body we would have to make a united diplomacy treaty first. Though I would still oppose exchange rates.

Erik, if I as an individual were to open an account in the SC and then offer a citizen of Shireroth some Pecuinae (Antica's currency) in exchange for some Small Commonwealth currency, this would be an example of a free market currency exchange. As a result of this free market currency exchange, there would be an exchange rate. Unless you want to ban all international trade between non-SC countries and SC countries, or perhaps ban SC citizens from possessing Antican Pecuinae, then some sort of exchange rate will be inevitable. The real issue here is whether the exchange rate should be based on the free market or fixed by edicts of our respective governments.

The simplest solution would of course be for Antica to join the SCUE...

For a variety of reasons, it is unlikely that Antica will join the SCUE in the foreseeable future. That said, I generally support strengthening Antica's economic relationships with foreign nations and entities.

I have submitted the various options for discussion by our Cabinet. I am now prepared to pursue Option 3 as presented by your Trade Minister, Andreas:

Solution 3: Free Market + Initial Help
The Small Commonwealth United Economy NEVER agrees to fixed currency exchange. However, we'll negotiate an initial exchange of reserves; and then we're happy to allow the market to work (ie let individuals and governments trade currency at whatever rate they choose).

Minister Andreas, whenever you are ready, we are ready to conduct the initial exchange of reserves. Our Treasury Ministry is prepared to purchase some SC currency when your Trade Ministry (or a designated company or individual in the SC) is prepared to purchase some Antican currency.

What do we plan to do with the SC currency? After our Treasury MInistry purchases SC currency, it will probably sell it off to various individuals and groups based in Antica. It may also use it to pay for some joint economic ventures with the SC. Of course individuals and groups would not be forbidden from purchasing SC currency from the SC on their own and of their own volition, but this initial exchange with the Treasury Ministry would help get the market going. Then, as you say, we will be happy to allow the market to work.

[Andreas the Wise]

If people are happy for a free market option, that, I think, solves it all. Under that, no SCUE money is created or lost (its always owned by someone - just sometimes that individual is an Antican). The Initial Exchange (if we went with option 3) could be managed by an individual or company - it doesn't need to be done by the SCUE as a whole (and indeed, if we can avoid forming the SCUE as a whole into an organisation, as Erik pointed out, that would be a good thing). If individuals manage exchange rates, yes, they can make money on it; but a lot less money than with fixed exchange rates ...

Letting individuals do it also may remove the need for a treaty ... let me just check whether the current one is worded that only SCUE citizens can hold money (if not, we could start currency exchange informally any time we want).

EDIT: Post made before Vasroe's. Let me check the treaty and get back to you ....

[Andreas the Wise]

Ok, reading this carefully, it specifically says 'Any participant in the economy of a signatory nation'. It does not say citizen. I would say it is then down to the laws of the individual nations on whether non-citizens can register bank accounts there; but as long as at least one nation doesn't prevent non-citizens registering bank accounts there (and I can tell you at least Gralus and Nelaga have no such restrictions), currency exchange with any other nation can happen.

And even if there were such a law, exchange could happen via dual citizens if they existed. Either way, we don't need any new treaty, or indeed, any formal architecture, to deal with this.

So, the good news is, if Antica is happy with free market exchange as a model, someone or something can exchange currency with them for the purposes of an initial float. If any government would like to do that, they can have first dibs; otherwise, VBNC might give it a shot.

[Erik Mortis]

So they would have to register accounts in the individual nations, thus being bound by the laws and regulations on accounts in those nations? I would not stand in the way.

[Andreas the Wise]

Yes, they would be bound by the laws of that nation.

[mbasil]

Well, then, is there a national government, a company, or an individual here who would like to sell the Antican Treasury Ministry some SCUE currency in exchange for some Antican currency? If so, let me know. Next, the following steps can take place: 1) We agree on the amounts of money to exchange 2) I register an account on the Small Commonwealth's bank in the SC member country of your residence. 3) You send the agreed-upon amount of SCUE currency to that account. 4) You register an organization bank account (cost P 10.00) at http://bank.nafticon.org . 5) I send you the agreed-upon amount of Antican currency to that account. 6) We celebrate a new age in SC-Antican economic cooperation.

[Jonas]

Jonas, if your comment is any indication of your knowledge of Antica's economy, then I must suggest learning more about Antica's economy. Yes, our currency is stable--as opposed to wildly fluctuating. A wildly fluctuating currency would pose significant challenges for either fixed or free market currency exchange.

I don't know much about your economy, that's why I asked. Some nations mean with 'stable' inactive economies. I'm happy to hear that isn't the case.