Latvia and GMU
Posted by Ivo Cerckel on June 8th, 2009
This time it’s different, or is it?
fallacy of equivocation?
The signing of a landmark accord on GCC Monetary Union among four members of the six-nation Gulf Co-operation Council (GCC) did not wait until today Monday 8 June 2009 but occurred on Sunday evening in Riyadh.
The agreement signed by Saudi Arabia, Kuwait, Bahrain and Qatar provides for the establishment of the GCC Monetary Council this year that will pave the way for setting up of the Gulf Central Bank. (1)
Abdul Rahman Al-Attiya, GCC Secretary General, announced that the Gulf single currency would be pegged to the dollar. (2)
As the Financial Times reports this morning concerning Latvia:
When the immovable object of a fixed exchange rate meets the irresistible force of market sentiment, it is usually the market that wins.
But each time a crisis emerges, precedent does not stop the authorities behind a particular fixed exchange rate from arguing that in their case things will be different. (3)
Will my contradictor argue that for Latvia the euro is “too strong”, whereas for the GCC minus Two the dollar is “too weak” and that therefore the GCC case should be distinguished from the Latvia case?
In logic, the fallacy of equivocation consists in using one word in several senses or with a different “suppositio” (4) in different instances. (5)
Has the word “peg” different meanings?
Just in from the Financial Times:
The Saudi press agency reported that the ministers had signed an agreement on the union in a closed meeting but gave no further details on matters such as timing or on how reserves or debt would be managed. (6)
Who was that lunatic again who’s arguing that
the GCC minus Two should mark its (gold hiding in) oil
(oil being the only commodity that is large enough for gold to hide in)
reserves to market and not to model like the US of A?
Ivo Cerckel
honestmoney@maktoob.com
NOTES
(1)
Monetary union pact signed
Ghazanfar Ali Khan | Arab News
Monday 8 June 2009 (14 Jumada al-Thani 1430
http://www.arabnews.com/?page=6§ion=0&article=123381&d=8&m=6&y=2009
(2)
4 GCC states sign monetary accord
Saudi Gazette report
Monday, 08 June 2009 – 15 Jumada Al-Akhir 1430 H
FRONT PAGE
http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentID=2009060840226
(3)
IMF and EU can help avert panic over Latvia
By Stefan Wagstyl In London
Published: June 7 2009 20:02 | Last updated: June 7 2009 20:02
http://www.ft.com/cms/s/8e185968-5391-11de-be08-00144feabdc0,s01=1.html
(4)
Suppositio is a medieval term for the subject of a proposition, or that for which the general term in subject position stands.
http://www.answers.com/topic/suppositio
(5)
Juan Jose Sanguineti, “Logic”, Manila, Sinag-Tala Publishers, (first published in 1982 in Spanish by the Ediciones Universidad de Navarra in Pamplona), 1992, p. 169
(6)
Gulf states sign agreement on monetary union
By Abeer Allam in Riyadh
Published: June 8 2009 02:32 | Last updated: June 8 2009 02:32
http://www.ft.com/cms/s/0/fedb6bdc-53a9-11de-be08-00144feabdc0.html
SNIP
Foreign ministers of four Gulf Arab states formally agreed in Riyadh on Sunday to form a monetary union, in a show of unity to underline their commitment to the scheme after the United Arab Emirates pulled out last month.
No related posts.
June 8th, 2009 at 10:51
Latvia’s Problems Prompt Worry About Contagion
JUNE 8, 2009
http://online.wsj.com/article/SB124425206128990897.html
SNIP
Latvian officials worked to assemble an international aid package, aiming to avert a currency devaluation as neighboring countries voiced concerns about financial contagion.
The International Monetary Fund and the European Union are demanding severe budget cuts as a condition for the money Latvia needs to contain its crisis and maintain the value of its struggling currency.
While European and Latvian leaders said that Latvia’s peg to the euro would remain in place, traders, bankers and economists said a devaluation was inevitable and probably necessary to avoid a deep and prolonged recession in the Baltic nation.
Euro peg “anchor of stability” for Latvia -Almunia
Reuters, Saturday June 6 2009
By Toni Vorobyova
http://www.guardian.co.uk/business/feedarticle/8544420
SNIPS
ST PETERSBURG, Russia, June 6 (Reuters) – The European Union supports Latvia’s desire to keep its currency pegged to the euro, as it will provide an “anchor of stability” during a deep recession, the EU’s economic chief said on Saturday.
+
“We support Latvian authorities in their ambition to preserve the currency peg and, around this anchor of stability, to build a medium term strategy to … improve the future of the Latvian economy,” [EU Economic and Monetary Affairs Commissioner Joaquin Almunia] said.
WRAPUP 3-Polish, Swedish officials urge action on Latvia
Fri Jun 5, 2009 10:57am EDT
Polish central banker sees contagion risk in Latvia crisis
Sweden urges swift accord between Latvia and lenders
IMF’s Belka, economists play down fears of spillover
Trichet, Almunia say no relaxation of rules for euro entry
By Jan Strupczewski and Karolina Slowikowska
http://www.reuters.com/article/marketsNews/idUSL530148820090605
SNIP
WARSAW, June 5 (Reuters) – Polish and Swedish officials appealed for swift action to help beleaguered Latvia on Friday to prevent its economic crisis from spilling over into other countries in Europe.
Latvia Traders See 53% Devaluation, Forwards Show (Update1)
By Ewa Krukowska
http://www.bloomberg.com/apps/news?pid=20601085&sid=ahSknR7dFtFI&refer=europe
SNIP
June 4 (Bloomberg) — Latvia currency traders expect the lats to drop to half its value against the euro within a year as the Baltic nation struggles to cope with the effects of the global financial crisis, said Bank of America Corp.-Merrill Lynch & Co.
Forward contracts price the lats 53 percent weaker than its current spot rate of 0.7073, Benoit Anne, the London-based chief strategist for Emerging Europe, Middle East and Africa, said in a phone interview today. Forward contracts are agreements in which assets are bought and sold at current prices for future delivery.
June 8th, 2009 at 20:55
Yes, Latvia seems to have foreign exchange, forex, reserves.
And Latvia even seems to remove currency from circulation.
But does Latvia have gold reserves?
Latvia Currency Jumps Most in 21 Months on Central Bank Defense
By Laura Cochrane
SNIPS
http://www.bloomberg.com/apps/news?pid=20601085&sid=aIBfGC8hOnvY&refer=europe
June 8 (Bloomberg) — Latvia’s currency strengthened the most in 21 months as the biggest defense of its peg to the euro since an emergency bailout in December helped ward off speculators.
+
The country has bought about 643 million lati ($1.26 billion) this year, removing them from circulation and creating a shortage of the currency on the local market. The Rigibor, the interbank lending rate, rose to a record 19.6 percent on June 5 because of a shortage of lati.
June 9th, 2009 at 15:06
GCC: dollar peg plan could change later
Jun 08, 2009 at 16:28
http://business.maktoob.com/20090000004981/GCC_dollar_peg_plan_could_change_later/Article.htm?utm_campaign=Day-Newsletter&utm_medium=LatestBusiness-news5&utm_source=Day-Newsletter&utm_content=
SNIP
The four Gulf Arab states heading towards a monetary union could review in the future an initial plan to link their joint currency to the U.S. dollar, the Gulf Cooperation Council (GCC) secretary-general said on Monday.
Saudi Arabia, Kuwait, Qatar, and Bahrain signed a pact to create a pared-down union on Sunday, weeks after the United Arab Emirates became the second country to opt out following Oman.
State-run Saudi Press Agency, citing Secretary-General Abdul-Rahman al-Attiyah, said on Sunday the joint currency would be pegged to the dollar.
When asked about the report, Attiyah said Gulf states had years ago decided to link their currency to the dollar but did not rule out a change in the future.
“I don’t know if that will continue in the future but for now the fix is the dollar,” he told reporters in the Saudi capital Riyadh where the agreement was signed.
June 9th, 2009 at 16:41
Only forex reserves.
No gold reserves.
Latvian Lats Has Biggest Gain in 3 Years, Approaching Peg Limit
By Aaron Eglitis
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZRwR340AeBs
SNIPS
June 9 (Bloomberg) — – Latvia’s currency strengthened the most in three years, approaching the upper limit of the country’s peg, after central bank purchases drained liquidity.
+
The lats is pegged to the euro around a 1 percent target mid-point in a quasi-currency board system where the central bank backs money in circulation with FOREIGN CURRENCY RESERVES. Latvia like neighboring Lithuania and Estonia, is a member of the pre-euro exchange-rate mechanism and pegs the lats to the common currency.