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2018 | Buch

Currency Wars

Offense and Defense through Systemic Thinking

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This book uses systemic thinking and applies it to the study of financial crises. It systematically presents how the systemic yoyo model, its thinking logic, and its methodology can be employed as a common playground and intuition to the study of money, international finance, and economic reforms. This book establishes theoretical backings for why some of the most employed interferences of the market and empirical experiences actually work. It has become urgent for economists and policy makers to understand how international speculative capital affects the economic security of various nations. By looking at the issues of monetary movement around the world, this book shows that there are clearly visible patterns behind the flows of capital, and that there are a uniform language and logic of reasoning that can be powerfully employed in the studies of international finance As shown in this book, many of the conclusions drawn on the basis of these visible patterns, language, and logic of thinking can be practically applied to produce tangible economic benefits.
Currency Wars: Offense and Defense through Systemic Thinking is divided into six parts. The first part addresses issues related to systemic modeling of economic entities and processes and explains how a few policy changes can adjust the performance of the extremely complex economy. Part II of the book investigates the problem of how instabilities lead to opportunities for currency attacks, the positive and negative effects of foreign capital, and how international capital flows can cause disturbances of various degrees on a nation’s economic security. Part III examines how a currency war is initiated, why currency conflicts and wars are inevitable, and a specific way of how currency attacks can take place. In Part IV, the book shows how one nation can potential defend itself by manipulating exchange rate of its currency, how the nation under siege can protect itself against financial attacks by using strategies based on the technique of feedback, and develops a more general approach of self-defense. Part V focuses on issues related to the cleanup of the disastrous aftermath of currency attacks through using policies and reforms. Finally the book concludes in Part VI as it analyzes specific real-life cases and addresses the ultimate problem of whether or not currency wars can be avoided all together.

Inhaltsverzeichnis

Frontmatter
Chapter 1. Unconscious, Helpless, and Orchestrated Financial Crises
Abstract
This introductory chapter presents the current landscape of international finance in terms of financial crises by reviewing the relevant literature and by posting problems that are challenging the world of learning, central bankers, and government policy makers. By looking at the literature holistically, this chapter associates the concept of money with that of fluids through using the concept of systems and the systemic intuition, named yoyo model.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong
Chapter 2. Systems Research and the Systemic Yoyo Model
Abstract
To prepare the theoretical foundation for the rest of this book, this chapter introduces the basics of systems thinking, the systemic yoyo model, and some elementary properties of this model. Then, for the completeness of this book, this chapter also glances through the theoretical and empirical justifications on why each and every system can be seen as a rotational yoyo.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong

Systemic Modeling of Economic Entities and Processes

Frontmatter
Chapter 3. Systemic Representation of Economic Organizations
Abstract
Recent financial events since the 1990s, such as the Southeast Asian financial crisis, the South American financial crisis, the US subprime mortgage crisis, etc., caused abnormal changes to the monetary systems of the affected countries, leading to economic recessions and losses of wealth (Rickards 2012). That helps to make people ask the following question: is there a new method that can effectively be employed to address problems related to the movement of money, while providing measures needed to counter potential financial crises facing various economies? And this chapter attempts to address this question by laying down the necessary foundation.
Jeffrey Yi-Lin Forrest, Jesus Valencia, Yirong Ying, Zaiwu Gong, Baohua Yang, Qiaoxing Li
Chapter 4. Order Reduction of Dynamic Monetary Systems
Abstract
This chapter develops a control-theory model for the movement of money within an economic system based on changes in purchasing power of a currency by analyzing how the purchasing power changes within the economic system, and it details with the problem of how our method of reducing the order of the original control-theory model can be utilized to obtain models of reduced order that resemble the original model while still processing such important properties as observability and controllability.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong, Jinsuai Zhao, Jesus Valencia, Baohua Yang, Yong Liu
Chapter 5. Estimating the State of Economy Through Observers
Abstract
The reality of an economic system is very complicated. Any efficient regulation of the economy requires constantly updating the knowledge regarding the state of the economic development. However, many aspects of the economy are not easily observable and/or not readily measurable. This chapter addresses the problem of how the policy maker could reliably reconstruct the unobservable and immeasurable state variables of the economy by using various state feedback and output feedback mechanisms.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong, Bohua Yang, Yong Liu, Abdykappar Ashimov, Yuriy Borovskiy
Chapter 6. Estimating the State of Economy Through Controllers
Abstract
In order to study an economy by using control-theory models, one has to estimate the state of the economy. To this end, this chapter studies how to construct state observers for economic systems by employing the conventional control theory and the intuition of systemic logic thinking.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong, Yong Liu, Abdykappar Ashimov, Yuriy Borovskiy

Instability: The Brewing of Currency Wars

Frontmatter
Chapter 7. Some Major Financial Crises in History: 1929–2008
Abstract
The focus of this chapter, as suggested by the title, is to review some of the very severe financial crises that occurred during 1929–2008 in the United States and throughout the world. For each case, we will try to address the following questions:
  • What caused financial difficulties?
  • How funds flowed to meet financial needs?
  • What was the response of the commercial banks and central banks?
  • How was the financial condition of the economic system affected?
  • What was the cause of the disruption to the normal functioning of the financial system?
  • What form did the financial crisis take?
  • How was it resolved?
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong
Chapter 8. Effects of Foreign Capital on Economic Security
Abstract
History indicates that foreign capital provides development funds for economies and brings along advanced technology, equipment, and management so that the receiving economies benefit greatly. With these positive spillover effects for the domestic economies, one should also realize that excessive and disproportionate use of foreign capital also creates serious negative effects on the economic safety of the domestic economy. To guarantee the health and stable development (or the security), this chapter shows the necessity for the receiving economy to constantly monitor and forecast the movement of foreign capital within itself so that appropriate methods of regulation could be established.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong, Kurt Schimmel, Sifeng Liu, Jeananne Nicholls
Chapter 9. Economic Security Under Disturbances of Foreign Capital
Abstract
Considering both positive and negative spillover effects of foreign capital, this chapter establishes a method for the receiving economy of foreign capital to constantly monitor and forecast the movement of foreign capital within itself so that appropriate methods of regulation could be established in order to guarantee the health and stable development (or the security) of the domestic economy.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong, Kurt Schimmel, Sifeng Liu, Jeananne Nicholls, Nicholas A. Nechval

Observability: Initiating Currency Wars

Frontmatter
Chapter 10. Inevitability of Currency Wars
Abstract
As the title indicates, the objective of this chapter is to establish the fact that currency conflicts (or wars) are inevitable and each and every economic system is vulnerable to financial attacks. This end was practically confirmed by the case of Drexel Burnham Lambert, where the bankers could and were able to attack any business entity if they deemed the hostile acts were profitable (Sobel 1999).
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong
Chapter 11. Flashing with Swords: How Currency Wars Take Place
Abstract
Going along with the common knowledge that money can easily destroy a person, a family, and a healthy business enterprise, this chapter investigates how a currency war can potentially take place. By making use of the systemic yoyo model and Bernanke-Gertler model of fundamental value of capital, this chapter shows how money can be purposefully and strategically employed as a weapon of mass destruction. Based on how a currency war could be possibly raged against a nation.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong

Strategies of Self Defense

Frontmatter
Chapter 12. Self-Defense Through Manipulating Exchange Rate
Abstract
Based on the theory of how a currency war could be potentially raged against a nation or a region, this chapter makes use of the results of feedback systems (Lin 1994) to develop a self-defense mechanism that could conceivably protect the nation or region under siege.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong
Chapter 13. Self-Defense Based on Feedback Mechanism
Abstract
This chapter studies the problem that when the control-theory model of an economic system is established with the parameters determined, how can one design the corresponding economic policy that is based on feedback of the system so that the performance indicator would approach the pre-determined objective. By identifying the “invisible hand” that adjusts the economic market automatically as the feedback controller that regulates the economy’s supply and demand, this chapter focuses on the design of feedback controls that could withstand disturbances of the environment. This chapter establishes a feedback control model for the economic system, provides proofs for how well this proposed control method could perform in practice, and expands this method to design the linear multivariable feedback control and the feedback control of discrete variables.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong, Bohua Yang, Sailau Baizako, Oinarov Azamat Ryskulovich
Chapter 14. Another Plan of Self-Protection
Abstract
This chapter, based on (Chen et al. 2017), investigates the following problem: how could a nation possibly design a measure to counter large-scale sudden flight of foreign investments in order to avoid the undesirable disastrous consequences? Continuing what were presented in Chap. 12 (Forrest et al. 2013a), and based on how a currency war could be potentially raged against a nation, all results herein are established by making use of the results of feedback systems. And based on theoretical reasoning and systemic analysis, this chapter develops a self-defense mechanism that could conceivably protect the nation under siege.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong, Qionghao Chen

Clean Up Disastrous Aftermath Through Policies and Reforms

Frontmatter
Chapter 15. Design Economic Policies Based on Various Performance Indicators
Abstract
This chapter investigates when a large amount of capital flows suddenly to or away from a particular economy and how the consequent economic shocks can be minimized by employing feedback controls while the desirable economic growth can still be on track. By employing the method of the state and/or output feedbacks of control theory, this chapter explores how to practically design mechanisms based on the concepts of state and/or output feedbacks. In particular, this chapter presents a method of designing economically stabilizing strategies when the economic system suffers from external shocks by employing output feedback and Lyapunov feedback control.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong, Huan Guo, Jinli Guo, Stephen Larson
Chapter 16. Design Economic Policies that Do Not Create Bumpy Recovery
Abstract
This chapter studies how to make sure when the economic performance indicators approach some pre-determined target values due to the effect of adopted policies, the economy also develops reasonably well without experiencing much severe up-and-down fluctuations. This problem of concern is resolved by addressing the corresponding problem of pole placement of the general control-theory model of the economic system. This chapter (1) discusses conditions under which the poles of a constant coefficient linear economic system can be arbitrarily placed, (2) provides a way to calculate the matrix of feedback gain that is useful in placing the poles by using the feedback control mechanism so that the resultant constant coefficient linear economic system possesses a good quality stability and fast response speed, and (3) investigates the problem of how to design state or output feedbacks (economic policies) so that the resultant closed-loop economic system will have the pre-determined poles. At the end, some open problems of great importance are posed for future research. This chapter relates the issue of economic policy making and the pole placement of the general control-theory model of the economic system. The results are expected to provide practically useful guidelines.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong, Qionghao Chen, Huachun Zhao, Yingjie Yang
Chapter 17. The Problem of Optimal Macroeconomic Regulations
Abstract
By employing systems analysis and modeling techniques, this chapter establishes a stage for us to address the problem of international contagion of financial crises, and how future financial crises could be better contained by making use of the language of systems science. In particular, this chapter develops the general concept of optimal regulation (control) of challenging economic situations. It looks at different scenarios on how particular problems of economic optimization can be formulated and when different versions of optimal regulation could come into play. One practical implication is that the established concept of optimal economic regulations can be directly employed in managing difficult economic and financial situations.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong, Yan Yue, Dmitry A. Novikov
Chapter 18. Steepest Optimal Policies for Regulating Capital Flows and Exchange Rates
Abstract
This chapter investigates how an economic system should adjust its exchange rate and capital movement within the shortest time possible in order to reduce the disastrous aftermath of a financial crisis to the minimum. The main results of this chapter are produced by employing the logical thinking of general systems theory and the analytical manipulation of control-theory models.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong, Guosheng Zhang, John Golden
Chapter 19. The Problem of Optimal Path for Financial Reform
Abstract
This chapter studies the problem that when an emerging market economy attempts to emerge into the process of economic globalization and financial integration, how could it design a quickest path of financial reform in order to avoid potential crises and to minimize the disastrous aftermath of crises? All the results obtained herein are established by using methods of systems modeling and analyses of control theory.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong, Zhongyu Wang, Jinli Guo

Specific Case Analyses

Frontmatter
Chapter 20. Renminbi: A New Reserve Currency
Abstract
This chapter focuses on the study of what China has done and might need to further do in order to make its Renminbi a successful reserve currency of the world. It consists of five sections. Section 20.1 attempts from three angles to analyze the following issues related to RMB offshore market: how cross-border flows of RMB impact the domestic economy, how the expected RMB appreciation/depreciation influences the development of the offshore market, and how the RMB offshore market lacks liquidity. It also tries to develop a design for the circulation mechanism between the offshore and onshore market while providing advices on how to promote positive interactions between the two. Section 20.2 theoretically considers how the development of RMB offshore market impacts China’s domestic base currency and foreign exchange reserves and analyzes the mechanism of interest rate and its influence factors based on the principle of logistics by using methods of differential dynamical systems. Section 20.3 investigates what offshore non-deliverable forward market data can tell about the prospect for further RMB appreciation, as well as the development of Chinese financial market since July 2005 when the band for RMB to fluctuate was widened, and how the continuing volatility of the US dollar against the Japanese yen affects the development.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong
Chapter 21. A General Theory of International Money
Abstract
The development history of the international monetary system can be divided into four stages as follows: gold standard, the interwar period, Bretton Woods, and the post-Bretton Woods system. In particular, during the gold standard (1879–1914), the standard economic unit of account is based on a fixed quantity of gold. It includes three types: specie, bullion, and exchange. The critical feature of the gold standard is its self-equilibrium nature. After a nation committed to an official gold price and convertibility with open current and capital accounts, the mechanisms producing “automatic adjustment” were classically described by the price-specie flow mechanism associated with David Hume. If a country suffered from trade deficit, this country would rather pay with gold as the currency depreciated (compared to the trade surplus country). This process would equilibrate the trade balance between the two countries as the prices in the previously deficit country became more attractive. This self-adjustment mechanism was determined by the supply and demand of gold in the world.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong
Chapter 22. Where Will the US Dollar Go?
Abstract
In the eighteenth century, Britain was the largest economy of the Western world; London was the center of international trade and finance; the currency was convertible so that sterling became the world’s reserve currency. After World War II, the US dollar dethroned the British sterling to become the world’s leading reserve currency. The dollar accounts for about two-thirds of the global reserves and 88% of daily foreign exchange trades. By the 1960s, the dollar had usurped sterling and was the world’s new reserve currency with 60% of total central bank reserves being held in dollars, twice the level of sterling reserves.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong
Chapter 23. Where Will Chinese Yuan Go?
Abstract
The Triffin dilemma is the inherent contradictions existing in the international monetary system. Whether it is gold-standard system or the Bretton Woods system or the current Jamaica system, this dilemma cannot be resolved. This dilemma represents the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies. It was first identified in the 1960s by Yale University Professor Robert Triffin, who pointed out that the country whose currency, as a global reserve currency, foreign nations wish to hold must be willing to supply the world with an extra supply of its currency to fulfill the world demand for foreign exchange reserves, thus leading to a trade deficit.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong
Chapter 24. Avoiding Currency Wars with a Single World Currency?
Abstract
As the title suggests, this chapter attempts to address the question of whether or not introducing and adopting a single world currency can help to avoid and end all currency wars. To this end, it is shown that a single world currency can be issued only if the current world system of states is eliminated and a unified world government is established, that as long as natural resources are not evenly distributed throughout the world and as long as there are civilizations with inconsistent value systems, there will not be any unified world government, and that under the condition of common existence of sovereign states, it is possible for a regional single currency to be introduced and adopted if the states involved share similar values and world views. That is, it is practically impossible for the mankind to avoid currency wars by employing a single world currency.
Jeffrey Yi-Lin Forrest, Yirong Ying, Zaiwu Gong
Backmatter
Metadaten
Titel
Currency Wars
verfasst von
Jeffrey Yi-Lin Forrest
Yirong Ying
Zaiwu Gong
Copyright-Jahr
2018
Electronic ISBN
978-3-319-67765-1
Print ISBN
978-3-319-67764-4
DOI
https://doi.org/10.1007/978-3-319-67765-1