Sergey Oboguev (oboguev) wrote,
Sergey Oboguev

For a wide class of exogenous stochastic processes ... the commodity stabilization scheme will with certainty ... fail in finite time. Boldly put, commodity stabilization schemes are bound to fail. Therefore, the gold stanard, the gold exchange standard, and gold-dollar standard were bound to fail, and, indeed, any fixed exchange rate scheme short of full monetary unification is bound to fail.

This pessimistic conclusion emerges in the absence of speculative bubbles and with rational expectations by all market participants... The proposition is driven by the same laws of probability that cause a gambler's ruin: any finite stock of reserves will eventually be exhausted by cumulative effect of even small exogenous shocks to the nonspeculative components of demand.
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