Food; the world’s strongest Currency

Currency Reserves or Central Banks utilize monetary policies, such as; the movement of interest rates by which registered financial institutions can lend to or borrow from the reserve bank, the removal of old money or the printing and release of new money into the system, the expression of moral persuasion and more, to control their currency and their economy. Many of the major currency reserve banks, with interest rates approaching zero, have chosen to implement programs of quantitative easing; by purchasing government and quasi-government backed securities on the open market in order to lower interest rates and increase the money supply, not by printing new banknotes, but by flooding financial institutions with capital in an effort to promote increased lending and liquidity. It should also be noted that, many economists are speaking about Helicopter Money; where central banks are considering releasing money directly into individuals’ bank accounts to encourage spending, investments and job creation.

Currency strength is based on numerous factors, at any given point in time, primarily measured against the valued reserves held in and by its central bank; cash in local and foreign currency, tradable commodities, such as, gold but it is the currency relationship to other currency that gives it, its purchasing power. Such power and value is derived from supply and demand, how a government pays foreign obligations and how the said government receives payments. Common borrowing practices call for debt and interest and fees charged on that loan to be repaid in the currency it was first issued, hence, bonding these two currencies for the period of the debt. Correspondingly, if foreign investors purchase local government bonds, it strengthens the local currency, by expressing trust, in the country’s economic fundamentals.

The Trade Balance, reported by currency transactions, is the ultimate measure of productivity; inputs vs. outputs, the import cost of goods and services as compared to the export earnings during the same time period. In financial terms, trade balance, surplus or deficit, influence the total size and the composition of the current-account balance and, more broadly, it influences the balance of payments, which has an effect on not only the trade balance but also income payments, loans and foreign aid. In the case of long lasting trade deficits, which would require growing levels of foreign debt and debt servicing, a weakening of the local currency would be inevitable. Even before that, a perspective view of the economy can stall or stagnate growth.

Net Exports, a trade surplus in hard currency to allow for payments of vital imports in any currency without new borrowings, is the objective. Mapping and anticipating global business cycles and building reserves to withstand low export earnings falls under the ambit of fiscal policy; short, medium and long-term budgets and proper communications to the population on the state of the economy. Hence, public expenditure on Governance; regulatory agencies, Fiscal & Monetary Policies; taxes debt and debt servicing, Resource Preservation; security law and order, Human Development; health and education, Infrastructure Management; maintenance and new construction, Economic Drivers; monetizing local resources, all as a percentage of current revenue would guide public expectations.

Food prices can also be a very powerful indicator of currency and economic strength, as inflation measured by prices at animal and plant farms and fish fresh off boats are constantly influenced by inputs prices, exchange rates and also, by supply and demand issues. More pricing adjustments are made, downstream, after processing, which can have an effect on decisions to export or flood the local market. Noting that, in a free trade economy competitive food items will also be imported. This smaller food inflation index is publicly visible at the retail counter and gives the population a short-term future forecast to react too. A lower volume of imported foods, with higher prices on all food items, indicates a depreciating currency and retracting economy. That is why, government borrowing to meet public expenditure and feed the population is necessary, but the best use of borrowings, both foreign and local, to invest and increase the capacity to produce food, with export potential to earn hard currency, is essential, as this will also create new jobs, increase consumption and strengthen the local currency; growing tax revenues.

Rationale

T.A.J & Associates Company Limited uses this occasion to comment on topics that have been covered, both academically and by the mainstream media, to add its opinion and point out investment opportunity, not to invoke any social action.