Research Publication: Currency Ideas For Vietnam and Other Developing Economy Countries


The challenge question is:  Why is the US dollar stronger than the Vietnamese Xu and other currencies that exist out there?  Shouldn't the currencies be backed by the same basic goods and services?

I argue that the idea is that the US dollar is backed by a random basket of American goods that is equal to 1 US dollar.  The Xu is backed by a random basket of Vietnamese goods that is equal to one Xu.  So, why are the values of those two currencies different?  I claim that it is because the baskets of goods have different volatilities, or, to put it a different way, different standard deviations.

Thus, I, as a non-professional economics research fan who does not have any expertise in this area, suggest that the following idea or something like it might be a good idea worth conducting further research on:  Try to have the Xu have a "role model currency" that it tries to mimic the standard deviation of over time, and use this to have central government banks in Vietnam (and other applicable countries) set precise prices for the exchange of their currency for other currencies.

Let's say that the Vietnamese choose the US dollar as their "role model currency."  The desired goals are:  1). Preserve the standard deviation of the US dollar, and 2). Preserve the "organic" nature of the Xu currency to avoid driving investors away.

The way that I propose to do this is, take a random basket of US goods and a random basket of Xu goods.  Take many such baskets if desired.  Go back in time to about, let's say, 100 weeks in the past.  Each week, track the price changes of each good in the basket.  Also, in the case of the Xu goods, select a particular constant rational number Q to be the "multiplier"; we select Q so that the standard deviation of the goods' prices, when impacted by the application of the Q multiplier, are the same as the standard deviation of the dollar goods' prices, which are *not* modified by a Q multiplier.  What we do is, we look at each product price in the Xu basket of goods, and simulate the price change each week to be multiplied by Q, i.e., if Good A is $5.00 one week 1, then $5.20 on week 2, then if Q = 7.0, we'll have the price at week two be $5.00 + 7 * $0.20 = $6.40 .  I claim, while omitting any proof (I haven't found one), that there always exists a Q value that works to preserve the standard deviation.

Ultimately, we are going to use the Q multiplier to change the final price of the basket of goods.  Ultimately, the basket of goods in the Xu currency will be priced in accordance with the price changes, with the Q multiplier applied to change the final value of the basket of goods prices.  If we selected a basket of goods that was equivalent to the US-dollar-backed basket of goods in value, then we can hope that our manipulation will yield something that is in some sense equivalent to the US dollar backed basket of goods.  Again, we're trying to preserve value, the standard deviation, and the organic Vietnam-based nature of the basket of goods.

Sorry if this idea came out garbled or isn't particularly valuable.  I am trying my best to produce and publish good ideas, but I am not a trained economist yet, if I ever will be.  Please let me know if you have any questions!







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