As with languages most regions tend naturally towards using a single primary unit of account. Displacing the government version isn’t going to happen by stealth. Policy reform is the only real viable option.

Of late the US dollar feels like it is going to go through a big bottoming out process against the Euro.

However I think it’s another story against the Aussie. I like the Aussie doll. I ditched my commodity stocks in favor of the aussie a little while ago as I think it has a lot of room on the upside. There are now far too many people playing commodities and commodity stocks so I never like a crowded trade.

I like the aussie so I have put together a basket of currencies primarily against the Euro, Sterling and a little against the Yen.
Since the move up in agricultural commodities and higher materials contract prices several investment banks have calculated fair value to be around Aussie /US1.3.

In fact we now have better terms of trade that we did in the 70’s.

This trade is far less crowded than the other plays I talked about and also have the interest rate differential on my side.

The hard headed approach by the RBA is running in my favor.

Negatives are that the economy could slow faster than anticipated and the RBA starts to cut rates quickly. This is possible but less likely. the other problem is that the global credit crisis goes further into the red. However US bank stocks are looking a little bit better these days, so i’m less concerned but still mindful.

Gold is no longer interesting and could actually fall futher. I’m only interested in gold if it goes to US$780-750 an ounce with a sub US$700 stop loss.

Hope I’m right.

Open market operations and monetary policy are a highly technical area, and they can get as technical as the reader’s knowledge of economics. Like private money however, it is not a “purely academic interest”. As for Govenrment plans, monetary policy changed with Keating and Costello. It might change again with Swan.

Tell the young couple – everything gets cheaper. Have them look at the net result. If they are worried about petrol, tell them part of the reason why fuel costs more than ever is that too much money was printed in the past, and that the Government takes 42 cpl in excise and GST-excise interaction alone. Most people are familiar with a budget constraint – having too much money is like spending too much money. Instead of being in debt, our money becomes worth less.

Also stability in inflation is important too. We want low inflation and stable inflation. Unstable inflation can cause mispricings and short and long term unemployment.

The young couple benefits as it keeps them employed at a higher real wage rate.

I suspect that the young couple in EDs example would have little difficulty understanding that a stronger aussie dollar would make grain and oil cheaper for them. At this point in time the goal of open market operations should be to make the aussie dollar stronger by injecting less new cash into circulation and withdrawing old cash from circulation if necessary. Using interest rates as an interum target is a distraction.

The idea of issuing private money is purely of academic interest, there are no Government plans to do this, so it is irrelevant.

I suspect most people are skeptical that raising interest rates will lower the price of food and petrol. Indeed, they may view rising interest rates as part of the problem rather than part of the solution.

Imagine you are confronted by a young working couple with a mortgage who are facing higher petrol and food prices. How would you explain to them that an increase in interest rates is good for them? Especially as this would lead to higher mortgage repayments, a slower economy and a higher risk of unemployment. Can you convince them that higher interest rates will lower petrol and food prices? And even if you could, so what if petrol and food costs fall $100 p/m if the mortgage has gone up $100 p/m and you are now unemployed?