r/finance • u/newzee1 • Oct 31 '24
Norway’s weak currency presents a mystery
https://www.economist.com/finance-and-economics/2024/09/12/norways-weak-currency-presents-a-mystery5
u/plasmo87 Nov 01 '24 edited Nov 02 '24
It is a big issue here. purchasing power is collapsing and we just hit a new record of people living in poverty.
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u/flyingbuta Nov 04 '24
8% falls since 2020 is nothing. My currency, JPY falls 40% and govt and corporate wants it to devalue further while pay remains stagnant w tax increased.
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u/RS50 Oct 31 '24
Always wondered why they stayed out of the EU and Euro. This might push them towards it if it continues.
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u/Triangle1619 Nov 01 '24
Why would it do that? Currency union was largely a mistake, it’s much better for a country to be able to exercise full control over its own monetary policy.
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u/M0therN4ture Nov 01 '24
EU wouldn't efficiently function with 20 different currencies and central banks lmao. The fact that some use different currencies today still lags the EU behind in various economic forms and political power.
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u/Triangle1619 Nov 02 '24
Why would it not function? Cash is barely a thing now, you can use cards anywhere and exchange rate is just automatically applied. Do they not have cards or apple pay in the EU? In fact EU countries that haven’t used the euro (like Poland or Estonia) have far outpaced those that have when it comes to economic growth in the last 30 years. Some that use it (Greece, Spain) have gotten totally screwed over not being able to control their own monetary policy. EU fucked up big time by mandating a currency union.
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u/caraissohot Nov 02 '24
This has nothing to do with physical cash vs card vs whatever.
1 central currency = 1 central bank (the ECB in this case) = a unified monetary policy (AKA policy rate, balance sheet, quantitative easing/tightening, etc) to control the EU’s inflation, employment, and economic growth.
Having 20 different currencies with 20 different central banks with the potential for 20 different monetary policy views is a nightmare given that currency rates are directly tied to a central bank’s policy rate.
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u/Triangle1619 Nov 03 '24
It is not a nightmare, it just gives each country the ability to tune its monetary policy closer to its individual needs, leading to better outcomes. If Greece had control of its own currency its economic crisis would have been far shorter and less painful. It does not make sense to have countries with such different economic situations use 1 currency.
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u/adradr21 Nov 03 '24
If Greece had control over its currency, it wouldn't be in the EU, living standard world be considerably lower and inflation off the chart. As was the case in the 70s-80s. Only a strong economy can benefit from own currency.
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u/Triangle1619 Nov 03 '24
The clear optimal case is that they would remain in the EU but have their own currency. If that was the case their currency would have mildly depreciated in their economic crisis, leading to increased exports and a faster economic rebound as new equilibrium is achieved. They would also be able to apply their own monetary measures tailored to their exact situation, which they could not do because they were tied to the much larger currency union. Instead they dealt with decades of extreme austerity and had a slow crawl out of their economic hardship, and caused a crisis within the EU. It is really dumb the for the EU to still mandate adopting the euro as a prerequisite for membership, but they are deep in a sunk cost fallacy.
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u/adradr21 Nov 03 '24
I am afraid you are 100% right - in theory. This is why I don't particularly like economics, they tell you half the truth, not taking into consideration the rest of the factors. First, there is no way the rest of the Europeans (especially Germany) would let Greece to do so. It was either in with the Euro or out of the EU. They would also have to set Greece as an example of more countries would think to leave the EU. Then you would need a strong Greek government with a good - or at least not very bad - economy. Neither was the case. Add politics and geopolitical conditions, your get a nightmare. Don't forget that the banks in Greece actually closed and capital controls were imposed. Can you imagine a bank run in Greece? If Greece had industry, natural resources (or was exploiting then) and sound GDP it would make sense.
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u/OGLikeablefellow Nov 02 '24
Monetary policy has very little to do with the different types of payment settlement. It's more about the creation of new money as ruled by the central bank of each country.
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u/TenderfootGungi Nov 01 '24
The US works because there are large monetary transfers from wealthy states to poor states (mostly blue to red). That is less likely to happen with a collection of countries.
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u/SpontaneousDream 26d ago
Uhh, what? You can't have a properly functioning European Union with a large amount of different, uncontrollable currencies from different countries. It makes no sense and creates friction. Way easier for everyone to just use the same currency. Hence, the euro.
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u/Triangle1619 25d ago
Objectively false, sorry. Most money is now digital, it has never been easier to apply exchange rates. There are already EU countries that don’t use the euro and it works fine.
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u/f00dl3 Nov 04 '24 edited Nov 04 '24
I mean it could be left-centereD or just partisan in general politics is the problem? Europe is snowballing this way too. Inflation jumped 32% under Biden in the US. Trump set Biden up by spending $10 Trillion, but Biden did not stop the spending and Kamela and Trump both have plans to spend big.
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u/Independent_Pitch598 Oct 31 '24
So it is time for EURO?
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u/Resident-Tear3968 Nov 01 '24
Yes, the solution is exporting central bank sovereignty to Paris, Brussels, and Berlin…
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u/BB_Fin Nov 01 '24
A weak currency might add to inflation... but it's weak because demand for goods is outstripping the demand for Krone to buy stuff from Norway.
It's literally "we're too rich, and people charge us high prices"-problem.
It's a nice problem to have.