Taskie !How to get task done well!

Digital Cash and Policy Authorities (3)Filed Under: General

c) Problem of the expansion of foreign currency use
If part of domestic economic activity is based on foreign currency, its influence, which is conveyed by the domestic currency’s short-term interest rate, can pull down the “real economy.” Moreover, the influence of monetary policy can become insignificant, being limited to bank lending in domestic currency. Price changes for goods and services provided by foreign countries may influence the domestic
economy as well.

The impact on domestic short-term interest rates would not be weak, but would be relatively strong as long as the policy authorities control the “high-powered” money. However, it’s possible that the effect of fluctuations in the domestic shortterm interest rate on the long-term rate is weakened through arbitrage trading. The mechanism of arbitrage trading buffers itself against much influence from the movements in short-term interest rates. However, this is not limited to the digital cash environment alone.

Taken From: 10 Minute Guide to Conducting a Job Interview