The problem of exchange rate volatility

This comment was made this week at http://www.macrobusiness.com.au  (link may be locked)


Restrict the unproductive capital inflows and you will get an exchange rate that better reflects our trade performance.

Sensible and flexible working arrangements will remain important to allow business to be responsive but that will happen as Australian become accustomed to earning their lifestyle rather than funding it by selling off our capital and claims on public and private future income like there is no tomorrow (pessimists stop right there).

Along with


That sounds pretty complicated and messy.

If we just started with

1. A complete restriction (introduced gradually over 5-7 years) on off shore borrowing for residential real estate

2. A complete restriction on off shore sales of Govt securities. Ownership of bonds can be registered just as we register ownership of property. Only locals can be registered owner of a bond. Good bye foreign bond traders!

We will probably find that the situation is greatly improved close to $1T trillion less demand for $AUS has to have some impact.

After that the things to look at are the rate of expansion of the mining industry – though the damage has largely been done.

It was simply loony to encourage capex on a massive scale right across the economy in such a short time frame.

Once constructed the pressure to drive volumes as the prices fell would only mean that our precious mineral resource get exhausted ever faster.

Export volume licences would have allowed the government some control over the rate of expansion without trying to pick winners or interfere with state rights to royalties.

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