[BOK] Help your country: crash the economy
Day 993, 04:55
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Published in Netherlands 
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by
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by Boklevski
Some pre-reads, for those who are intereste
Future Economy, Vai Siv in “Ink on Papyrus”, 6 days ago. - Prediction on V2 economics
On State Intervention and the NLG and BEF rates, Boklevski in “Boklevski’s News”, 8 months ago. - Exchange rates and comparing local rates to global rates. (I should redo that research now in V2…)
Monetary Market: How to benefit? (PART I), Boklevski in “Boklevski’s News”, 11 months ago. - Monetary Market basics
Introduction of the topic and purpose of this article
Okay, I’m going to publish another Wall of Text about economics. Read this at your own risk. I cannot be held responsible if – as a direct or indirect result of this article – you are caught falling asleep behind your desk at work or if you get permanent brain damage because of the dull economic thinking… I even cannot be held responsible if you are bored to death.
Let’s get one thing clear first: this is just an article to display a different view. I mainly hear people say that we cannot allow our rate to drop below 1 NLG = 0.016 G. But what would happen if we crash this to 0.008 NLG or lower? I can’t say if things would really turn out as described below, but I just want to name a few arguments and explain the possible outcome a bit. Maybe it can be some input for a Congress Debate.
Artificial Exchange Rate
We have maintained exchange rates of 1 NLG = 0.016 G and approximately 1 G = 66.5 NLG. Many considered this the “natural” balance of our currency. With V2 going live, we let the free market do its work a bit, but (too?) quickly decided to stabilize again at the “natural” rate.
But is it really that natural as we think? We have seen in the past few days, that the MoF has put the GOLD to NLG rate at 1 G = 67 NLG and later 1 G = 71 NLG. As a result, the NLG to GOLD rate quickly dropped from 1 NLG = 0.016 G to 1 NLG = 0.015 G. It was even raised to 71.5 NLG later, and offers of 0.014 G appeared (although I’m mainly guilty for that, and the offer will be bought off the market quite fast, as I expect).
Going down… going down…
So our rate is crashing, because of the MoF raising the offers! Is he a bad guy now, who is going to destroy our country? I don’t think so. In fact, let’s see what happens if the MoF completely removes the offers of the government. There’s a few gold at 76.5 NLG, and everything above is around 200 NLG. So the NLG to GOLD rate will probably hover around 0.013 G for a few hours, and then theoretically crash to 1 NLG = 0.005 G. (Note that it will be more slowly, because speculators will put on offers of – for example – 1 G = 100 NLG on the market in the meantime.) But a rate of 1 NLG = 0.005 G… then what?!
Lower GOLD to NLG rates
Well, we should first learn to speak Hungarian. Let’s take some good food as example: Ingredients 60 and Packaging 60. Buying this in UNL costs you 6.57 NLG at the moment. That would be 0.105 G with a rate of 1 NLG = 0.016 G. However, if you travel to Hungary, you can buy this for only 1.89 HUF, equaling 0.036 GOLD (1 G = 0.019 HUF). If our rate crashes to 1 G = 0.005 NLG, the same food would cost only 0.032 G in UNL! So we should need Hungarian to answer all our new Hungarian customers! (Okay, maybe Hungarians won’t come here because of the small difference, but for economies where food is not as cheap as Hungarian, travelling here could be worthwhile, especially when buying expensive things as houses or strong tanks.)
So we actually gain customers from all over the world. We could even focus on a very special market as a country: hospitals and defense systems. With a selling price that is very low in GOLD, countries will come to us to buy their infrastructure. It is a market that is hard to start a new company in, because of the specialized workforce needed, and the many export licenses that a company need (you can only sell hospitals and defense systems abroad with an export license, governments can’t travel to you and “take” it back home with an organization). Therefore, our competitive market could quite well last. We’ll become a leading export country, and attract customers and businesses (and thus gold!) from all around the world. Also, we’ll exploit our strongest point the most: our grain will definitely be the cheapest in the world, and export licenses to other countries will become a great investment for our companies.
But won’t this be at the cost of our employees and their wages? Not necessarily! As local prices don’t raise, the food would still be 6.57 NLG. The wages will still be the same. It’s just different in GOLD. Therefore, you can buy the same things with the NLG you have. The only thing more expensive is foreign goods: importing from other countries will dwindle, and thus most citizens will buy from the local market, spending their money in local companies and sales taxes going to our UNL state treasury. That doesn’t sound like a problem, does it? Life in UNL won’t change that much.
Houston, we have a problem…
As described in this article, it is likely to happen that the rates crash globally. I think the author hits the spot right on. Boosters cost too much GOLD, wars cost too much GOLD, etc. Rates will drop, so why not do it immediately to get this export advantage over the rest of the world? If we stabilize and wait, other countries will have a lower rate already, and our advantage will not be as big as described. We cannot build up a good export reputation (plus the required stimulus for companies to buy export licenses), and cannot build up a competitive position (workforce and licenses).
We have a problem anyway. We might as well face it immediately and get something out of it. So let’s help our country, and crash the exchange rates!
Conclusion: some considerations
As said at the start: I cannot predict if it really works out this way, I merely want to illustrate possible positive implications of a lower rate. I support the MoF in his decision to let the rate go a bit, because the state was selling too much gold at the not-so “natural” rate, while it might need the GOLD for other purposes.
There are also a few disadvantages to lower rates, however. Although the wages in NLG stay the same, it does mean lower wages in gold, and people might leave to earn more money somewhere else. Boosters – which can only be paid for in GOLD – will be very expensive (weakens army, makes training etc. more expensive). Also, import will be more expensive. A solid tank (40 ammo, 30 attack, 20 defense, 10 duration) costs 116,15 NLG (1.86 G). In Hungary, a comparable tanks costs only 17.25 HUF (0.32 G). I am buying my tanks in Hungary as a result, but if our rate drops too much, buying GOLD will be expensive. As a result, tanks will be too expensive for me in both UNL ánd Hungary.
As you see, there is no right or wrong. There are just a lot of arguments that has to be weighted. Personally, I can only say that I am no longer against letting the free market do a bit of work: we shouldn’t stick to the 1 NLG = 0.016 G rate at all cost, in my opinion. But it can well be that you think completely different about that! Make sure to state it in the comments.
For those who survived my Wall of Text: thanks for reading. Make sure to leave a comment or discuss this on the UNL forum. Register there and participate in the UNL community if you haven’t done already!
Kind regards,
Boklevski
Wanna-be Parttime eRep Economics Analyst
😛
Future Economy, Vai Siv in “Ink on Papyrus”, 6 days ago. - Prediction on V2 economics
On State Intervention and the NLG and BEF rates, Boklevski in “Boklevski’s News”, 8 months ago. - Exchange rates and comparing local rates to global rates. (I should redo that research now in V2…)
Monetary Market: How to benefit? (PART I), Boklevski in “Boklevski’s News”, 11 months ago. - Monetary Market basics
Introduction of the topic and purpose of this article
Okay, I’m going to publish another Wall of Text about economics. Read this at your own risk. I cannot be held responsible if – as a direct or indirect result of this article – you are caught falling asleep behind your desk at work or if you get permanent brain damage because of the dull economic thinking… I even cannot be held responsible if you are bored to death.
Let’s get one thing clear first: this is just an article to display a different view. I mainly hear people say that we cannot allow our rate to drop below 1 NLG = 0.016 G. But what would happen if we crash this to 0.008 NLG or lower? I can’t say if things would really turn out as described below, but I just want to name a few arguments and explain the possible outcome a bit. Maybe it can be some input for a Congress Debate.
Artificial Exchange Rate
We have maintained exchange rates of 1 NLG = 0.016 G and approximately 1 G = 66.5 NLG. Many considered this the “natural” balance of our currency. With V2 going live, we let the free market do its work a bit, but (too?) quickly decided to stabilize again at the “natural” rate.
But is it really that natural as we think? We have seen in the past few days, that the MoF has put the GOLD to NLG rate at 1 G = 67 NLG and later 1 G = 71 NLG. As a result, the NLG to GOLD rate quickly dropped from 1 NLG = 0.016 G to 1 NLG = 0.015 G. It was even raised to 71.5 NLG later, and offers of 0.014 G appeared (although I’m mainly guilty for that, and the offer will be bought off the market quite fast, as I expect).
Going down… going down…
So our rate is crashing, because of the MoF raising the offers! Is he a bad guy now, who is going to destroy our country? I don’t think so. In fact, let’s see what happens if the MoF completely removes the offers of the government. There’s a few gold at 76.5 NLG, and everything above is around 200 NLG. So the NLG to GOLD rate will probably hover around 0.013 G for a few hours, and then theoretically crash to 1 NLG = 0.005 G. (Note that it will be more slowly, because speculators will put on offers of – for example – 1 G = 100 NLG on the market in the meantime.) But a rate of 1 NLG = 0.005 G… then what?!
Lower GOLD to NLG rates
Well, we should first learn to speak Hungarian. Let’s take some good food as example: Ingredients 60 and Packaging 60. Buying this in UNL costs you 6.57 NLG at the moment. That would be 0.105 G with a rate of 1 NLG = 0.016 G. However, if you travel to Hungary, you can buy this for only 1.89 HUF, equaling 0.036 GOLD (1 G = 0.019 HUF). If our rate crashes to 1 G = 0.005 NLG, the same food would cost only 0.032 G in UNL! So we should need Hungarian to answer all our new Hungarian customers! (Okay, maybe Hungarians won’t come here because of the small difference, but for economies where food is not as cheap as Hungarian, travelling here could be worthwhile, especially when buying expensive things as houses or strong tanks.)
So we actually gain customers from all over the world. We could even focus on a very special market as a country: hospitals and defense systems. With a selling price that is very low in GOLD, countries will come to us to buy their infrastructure. It is a market that is hard to start a new company in, because of the specialized workforce needed, and the many export licenses that a company need (you can only sell hospitals and defense systems abroad with an export license, governments can’t travel to you and “take” it back home with an organization). Therefore, our competitive market could quite well last. We’ll become a leading export country, and attract customers and businesses (and thus gold!) from all around the world. Also, we’ll exploit our strongest point the most: our grain will definitely be the cheapest in the world, and export licenses to other countries will become a great investment for our companies.
But won’t this be at the cost of our employees and their wages? Not necessarily! As local prices don’t raise, the food would still be 6.57 NLG. The wages will still be the same. It’s just different in GOLD. Therefore, you can buy the same things with the NLG you have. The only thing more expensive is foreign goods: importing from other countries will dwindle, and thus most citizens will buy from the local market, spending their money in local companies and sales taxes going to our UNL state treasury. That doesn’t sound like a problem, does it? Life in UNL won’t change that much.
Houston, we have a problem…
As described in this article, it is likely to happen that the rates crash globally. I think the author hits the spot right on. Boosters cost too much GOLD, wars cost too much GOLD, etc. Rates will drop, so why not do it immediately to get this export advantage over the rest of the world? If we stabilize and wait, other countries will have a lower rate already, and our advantage will not be as big as described. We cannot build up a good export reputation (plus the required stimulus for companies to buy export licenses), and cannot build up a competitive position (workforce and licenses).
We have a problem anyway. We might as well face it immediately and get something out of it. So let’s help our country, and crash the exchange rates!
Conclusion: some considerations
As said at the start: I cannot predict if it really works out this way, I merely want to illustrate possible positive implications of a lower rate. I support the MoF in his decision to let the rate go a bit, because the state was selling too much gold at the not-so “natural” rate, while it might need the GOLD for other purposes.
There are also a few disadvantages to lower rates, however. Although the wages in NLG stay the same, it does mean lower wages in gold, and people might leave to earn more money somewhere else. Boosters – which can only be paid for in GOLD – will be very expensive (weakens army, makes training etc. more expensive). Also, import will be more expensive. A solid tank (40 ammo, 30 attack, 20 defense, 10 duration) costs 116,15 NLG (1.86 G). In Hungary, a comparable tanks costs only 17.25 HUF (0.32 G). I am buying my tanks in Hungary as a result, but if our rate drops too much, buying GOLD will be expensive. As a result, tanks will be too expensive for me in both UNL ánd Hungary.
As you see, there is no right or wrong. There are just a lot of arguments that has to be weighted. Personally, I can only say that I am no longer against letting the free market do a bit of work: we shouldn’t stick to the 1 NLG = 0.016 G rate at all cost, in my opinion. But it can well be that you think completely different about that! Make sure to state it in the comments.
For those who survived my Wall of Text: thanks for reading. Make sure to leave a comment or discuss this on the UNL forum. Register there and participate in the UNL community if you haven’t done already!
Kind regards,
Boklevski
Wanna-be Parttime eRep Economics Analyst
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Comments
I am still awake!!!!!
Now as MoF i would like to point out that we are in a very good position because we are in full control of our MM. We have the ability to dictate the rate because we have controlled and restricted the inflow of NLG into the game and saved enough gold to be able to buy it all back if necessary.
However, with the increased demand for gold we have to indeed face reality and limit our intervention. I say limit because i think we should provide a window of what is reasonable. Within that window we can let the market move which right now means a decrease of value for the NLG. This is something that needs to happen gradually (which I am doing right now).
Personally I think the rate of 0.008 gold per NLG (125 NLG per 1 gold) is not good for our nation. The economic module is a mess and is causing many problems. Prices are so slow in the world because everyone is paying minimum wage to their employees. The prices you are quoting are the lowest they can ever go and are only meant to provide enough funds to keep people employed. We could never go as low as those because most in NL still pay decent wages (check the job market in Serbia or USA)and most importantly we need to import our raw materials. If we half our exchange rate we double to cost of all the raw materials except grain. Seeing raw material now take a bigger share (30-40 of cost price) we would gain little.
Now me saying this doesn’t mean a rate of 0.008 is not possible in the near future. Like I said before I believe in limited intervention. The absolute bottom rate is 0.006 (because the cost of printing NLG is 0.005) and I think our top is 0.016 so 0.008 is in the current window.
I think we are at 0.015 allready, and that there are plans to slowly lower it, not crash it.
Good comments!
Don't tell anybody, but I obviously agreed with both of you. I'm not in favour of any economic shock therapies either, and I think the approach of Mitch currently is the best solution at the moment.
I took the example of "crashing it" to have an example of a high and low rate, and to illustrate the possible implications of it (and to spice up the economics thing a bit). I just wanted to have an example to show that low rates is not necessarily bad for us.
By the way: while doing it, I did found that our goods (food, tanks) are incredibly expensive compared to Hungary! When taking a rate of 0.008 NLG, the food taken as example is still more expensive in gold that in Hungary at this moment!
... I think I need to park my shopping cart near Hungary.
Interesting article, especially the remark that we should lower the goldrate before others countries will, in order to stimulate the export. Which reminded me of a situation in history, around the 1930's.
And, Boklevski, if you park your shopping cart near don't forget to pay the parking fee 😉
Interesting wall of text!
I spend quite a lot of time to make a nice comment to this, but because of an html tag I put in it, it all disappeared...
Well, core of my former comment: If there is depreciation of the NLG, Company owners would like to keep there profit in GOLD intact, therefore increasing prices in NLG -> Inflation. Prices in GOLD may not differentiate. In the end, the situation stays the same except for the fact NLG is worth less and thus printing will be more expensive. I think it's good to decrease government control over the course, but to let it 'crash' in one go, might prove to drastic. Things crash easier than they come back up again.
i think our new rate for now should be 0.012 at minimum.
but this should be discussed and watched at all times by MoF (and maybe some friends of the MoF who also understand something from finance).
but we shouldnt go to fast, because we need time to see what impact the new rate has (because nobody really knows what happens with another exchangerate).
And dont forget that we have enough people in the unl who have money and want to help in times of need and that together with the gold/nlg stack that DNB has, i see total domination of the MM in whatever way we want. However this will only happen when the MoF gives good argumented orders what people have to do.