Curing Forex Vertigo
Alfred Hitchcock understood Vertigo. While discussions of money, especially foreign exchange (forex), can be vertiginous too, we make it harder than it is.
Income flows. Wealth accumulates. Under some circumstances, money makes a convenient unit of account for keeping track of the value of both flow and stock variables like income and wealth. Money imperfectly captures value because our psychic enjoyment of things isn’t directly measurable or constant. In other words, money itself conveniently fictionalizes our transactional lives wherever those transactions happen to occur.
On the other hand, you exchange your labor and/or your willingness to bear risk for the things you want. Everyone else does the same. The classic answer to the philosophical question of whether say, we can know whether a chair is real, is that it’s there to sit on when we want to sit. None of us wants the game to change between the bank and cash register or vice versa. That is, in order to be a useful fiction, money must also reflect a realistic store of value.
Taking The Foreign Out Of Foreign Exchange
Although we easily imagine ourselves as the only players in the universe, laborers around the world expect the same thing from their money that we expect. That is, if we want to buy, sell, or invest in countries from Japan to South Africa we need a global mechanism to translate our useful fiction from one language to another. At the most basic level, that is how forex Influences all of us. Whether the butcher, baker, and candlestick maker are in the next block or on the other side of the world, each expects to get paid in a familiar coin that accurately reflects the cost of materials, time, risk, and labor.
Wading Through The Financial Press
Everything else in how forex Influences all of us, whether it comes with buzzwords like LIBOR, interest rate spreads, purchasing power parity, bps, Mbps, forex transaction costs, and so forth all tie back to those two ideas. To be useful for exchange, especially as suppliers compete for our business by lowering costs and we compete for our wages by increasing productivity, money must translate from country to country just as it does from neighborhood to neighborhood.
As the market increasingly globalizes, Hong Kong, Sidney, and London move closer to New York, at least in terms of trade as forex markets maintain a realistic score in the game.