h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

I recall an experiment a few years back called the exchange rate mechanism.

This was supposedly a half way house to the Euro. The currencies taking part were required to stay within certain bands of exchange rate.

The result of course is well known, the economic conditions were not correct for either the £ or the Franc to be in their set bands. Speculators knew this well and attacked both currencies mercilessly. The Bank of england spent around 20% of the UK's reserves trying to prop up the pound until defeat was admitted, we left the ERM and devalued the pound, a long recession followed. The Franc was only saved due to massive intervention by the Deutschbank as devaluation of the Franc would have destroyed the whole exercise entirley.

Essentially I saw this as a massive experiment that *failed* - rather disastrously too.

Having witnessed this failure I am concerned that it seems there is a big political will to walk of this potential abyss *again*.

I find it a little worrying that after an experimental failure the results are (apparently) largely ignored and the scheme is pressed on with anyway.
I'm rather glad we're not in it yet.

Speculators knew this well and attacked both currencies mercilessly.....................a long recession followed.


Yes, they did, and it did.

This is what currency speculators do for a living. They effectively apply the laws of supply and demand to our yardstick of value, so that the relative value of our salaries, possessions, and our employers' products rattle up and down on a daily basis.

We currently allow these people to impose their own tax on every transaction we make outside our national borders.


The Bank of england spent around 20% of the UK's reserves trying to prop up the pound until defeat was admitted


That was OUR money......It could have gone to schools, pensions or the NHS. Instead it went to the speculators.
Black Wednesday, and the recession that followed, made most of us a lot poorer, and a few speculators a lot richer.

Bring on the Euro, and let's put a few of THEM out of work for a change.

If you are going to have a system for buying and selling shares, currency and commodity then there will be those that do this for a living. That is what the speculators are. Those who professionally predict whether stock and commodities are at a reasonable value or not, whether they are going to go up and down or not.

If something is clearly and majorly overvalued then those who own it will clearly just go "sell sell sell" in order to cash in on that profit. Some are just able to do this on a larger scale than others.

In the end why do we buy our houses and not just rent? Because they tend to go up in value and in the end we make a profit when we sell (well we can also do our own redecorating admittedly ). This is morally no different to what currency speculators do.



That was OUR money......It could have gone to schools, pensions or the NHS. Instead it went to the speculators.
Black Wednesday, and the recession that followed, made most of us a lot poorer, and a few speculators a lot richer.


Absolutely. In that case we should run the economy on economic reality than on the pipe dream that was the ERM. That way we do not give speculators a dead cert rather than a gamble.

In the end I see the Euro as a big experiment and I think it makes economic sense to stay out and see if it goes OK before jumping in at the deep end as we did before.