Is the PEN mightier than the sword?
Day 648, 07:49
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Published in United Kingdom 
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by
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by DillTheDog
Recent changes to the Monetary Market
Again I start my column with an attempt to explain trading in general terms, followed by a look at a specific currency. This week we have the opportunity to look at a form of economic warfare.
About a month ago, the eRepublik admin made a very simple change, making a fundamental difference to the world’s currency markets. Prior to the change, the offers placed on the market had been sorted to show the smallest offers at a currency first. This meant that small traders could trade small amounts quickly, while those trading larger amounts of currency could either wait, or chunk up their offerings into smaller amounts and join in the trading frenzy. It was not uncommon for the small trader to be conducting 40-50 transactions a day on the monetary markets of the world.
The change meant that offers are now sorted in order of age. This small change means that all the big currency offers now get an equal chance to be viewed, and bought. This change certainly benefitted the ‘big boys’ – wealthy private individuals, trading houses, banks and national governments. However, the quick turnover, which is the stock-in-trade of the smaller investor, disappeared, and as a result, many of the smaller traders disappeared, and the markets, many of which were stable, good and above all fast traders, overnight became lopsided. Many smaller currencies have since faced intense pressure, and those that have settled have only done so through Government intervention. Big offerings can effectively block entry into a market, as smaller offerings behind it will rarely get sold.
However, while it is by this correspondent that the change will at some point be reversed, there is a way around the problem. It is messy, but it works, and it works like this... If there is a currency in which you are interested in trading, buy a small amount of it, 0.06 of the currency to be precise. Then put an offer of 0.01 of the currency to be worth 1 GOLD. The next day, place an offer for 0.01 of the currency, to be worth 1.01 GOLD. Continue the process daily ad infinitum. As the offers lapse after 5 days on the market, this is a self-perpetuating process.
The reason to do this is that each offer you put will never be bought (or if it is, it will bring a bonus profit), but does act as a time marker. When you are ready to trade in a currency, pick the offer in that currency at the lowest value (eg the oldest offering). While initially it may take a while to get offerings to the top of the queue, eventually you will have offerings right where you want them, and able to be bought of you. If small traders do this, and the large traders continue as they always have done, a degree of normality can return to the markets.
This week's tip
Isn’t actually a tip, as the opportunity is over. However, plenty of interest in what happened. Like the SKK last week (so that tip didn’t work out quite for me, though it so nearly did), the Government of Peru decided to significantly devalue their currency. Thus the PEN, trading steadily at 0.023 was revalued at a stroke to 0.018, a whole 5 points down. The National Bank of Peru even put an offering of 180 GOLD on the market, at that rate – a whole 10,000 PEN, a maximum offering – to fix the rate. Unfortunately, within 5 minutes the whole offering was bought, resold onto the market at 0.019, bought up, resold at 0.02 and so on right back to 0.022. The national Bank responded with a further offer of 90 GOLD (5000 PEN), and the same happened. The market is currently finding a compromise between 0.02, and 0.021, but not before the National Bank had made a considerable loss, without having achieved their initial aim.
What this highlights is the problems faced by currencies trading at low values. A similar offering by Russia, for example, would have cost twice as much to challenge, and would not offer the same level of return – therefore making it far less likely for the challenge to occur. A currency like the Norwegian NOK on the other hand, trading at 0.01 to 0.011 is far easier to attack. A maximum offering of 10,000 NOK is yours for 100 GOLD. A lot, but much less. It’s a big risk, and a large outlay to physically take on a currency, and is therefore rarely worth it. However, a 5 point reduction does give the speculator great opportunities. When you see something like that, dive in with both feet!!!
Again I start my column with an attempt to explain trading in general terms, followed by a look at a specific currency. This week we have the opportunity to look at a form of economic warfare.
About a month ago, the eRepublik admin made a very simple change, making a fundamental difference to the world’s currency markets. Prior to the change, the offers placed on the market had been sorted to show the smallest offers at a currency first. This meant that small traders could trade small amounts quickly, while those trading larger amounts of currency could either wait, or chunk up their offerings into smaller amounts and join in the trading frenzy. It was not uncommon for the small trader to be conducting 40-50 transactions a day on the monetary markets of the world.
The change meant that offers are now sorted in order of age. This small change means that all the big currency offers now get an equal chance to be viewed, and bought. This change certainly benefitted the ‘big boys’ – wealthy private individuals, trading houses, banks and national governments. However, the quick turnover, which is the stock-in-trade of the smaller investor, disappeared, and as a result, many of the smaller traders disappeared, and the markets, many of which were stable, good and above all fast traders, overnight became lopsided. Many smaller currencies have since faced intense pressure, and those that have settled have only done so through Government intervention. Big offerings can effectively block entry into a market, as smaller offerings behind it will rarely get sold.
However, while it is by this correspondent that the change will at some point be reversed, there is a way around the problem. It is messy, but it works, and it works like this... If there is a currency in which you are interested in trading, buy a small amount of it, 0.06 of the currency to be precise. Then put an offer of 0.01 of the currency to be worth 1 GOLD. The next day, place an offer for 0.01 of the currency, to be worth 1.01 GOLD. Continue the process daily ad infinitum. As the offers lapse after 5 days on the market, this is a self-perpetuating process.
The reason to do this is that each offer you put will never be bought (or if it is, it will bring a bonus profit), but does act as a time marker. When you are ready to trade in a currency, pick the offer in that currency at the lowest value (eg the oldest offering). While initially it may take a while to get offerings to the top of the queue, eventually you will have offerings right where you want them, and able to be bought of you. If small traders do this, and the large traders continue as they always have done, a degree of normality can return to the markets.
This week's tip
Isn’t actually a tip, as the opportunity is over. However, plenty of interest in what happened. Like the SKK last week (so that tip didn’t work out quite for me, though it so nearly did), the Government of Peru decided to significantly devalue their currency. Thus the PEN, trading steadily at 0.023 was revalued at a stroke to 0.018, a whole 5 points down. The National Bank of Peru even put an offering of 180 GOLD on the market, at that rate – a whole 10,000 PEN, a maximum offering – to fix the rate. Unfortunately, within 5 minutes the whole offering was bought, resold onto the market at 0.019, bought up, resold at 0.02 and so on right back to 0.022. The national Bank responded with a further offer of 90 GOLD (5000 PEN), and the same happened. The market is currently finding a compromise between 0.02, and 0.021, but not before the National Bank had made a considerable loss, without having achieved their initial aim.
What this highlights is the problems faced by currencies trading at low values. A similar offering by Russia, for example, would have cost twice as much to challenge, and would not offer the same level of return – therefore making it far less likely for the challenge to occur. A currency like the Norwegian NOK on the other hand, trading at 0.01 to 0.011 is far easier to attack. A maximum offering of 10,000 NOK is yours for 100 GOLD. A lot, but much less. It’s a big risk, and a large outlay to physically take on a currency, and is therefore rarely worth it. However, a 5 point reduction does give the speculator great opportunities. When you see something like that, dive in with both feet!!!
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Comments
How the Philippiines government conducted their devaluation. http://www.erepublik.com/en/article/past-plan-of-the-devaluation-movement-w-changes-916267/1/20" target="_blank">http://www.erepublik.com/en/article/past[..]1/20
Yeah a massive devaluation like that has to be done in steps, to try to make the speculators absorb the brunt of the devaluation.
Oh, and voted btw. Good stuff.
usefull!
Hey dill great article again 🙂
but 10000 isnt the maximum offering is it?
I thought 99999 was? govs have managed 4/5 point devaluations before but they have had the capital to back it up.
I would be very interested in the theory behind a smaller nation successfully devaluing it currency!
Hi Carsten.
Thanks for the comment. Yes, there were a lot of 9s in the sum. I was too busy buying to be honest...
The Philippines just tried a staged devaluation - see above... their offerings were much too low.
I suppose it boils down to trial and error. If I was in charge of a small currency, and contemplating devaluation, I'd be checking the volumes moving on the market, talk with local businessmen and currency holders, try to get multiple offers on the market, that sort of thing. Tough thing to do though