Fixed Exchange Rates Are Fixed

I usually read the weekly "Credit Bubble Bulletin" at the Prudent Bear website, as it gives a good summary of the week's economic news. One somewhat puzzling aspect of it is however the summary of exchange rate movements, which reports on both the movements of the euro and of the Danish krone.

As it happens, the movements are always the same. This week, both fell 1.6% against the U.S. dollar, last week both declined 0.9% and the week before that both rose 0.7%.

This extremely high correlation is no coincidence as Denmark has pegged its currency to the euro. Though the krone is formally allowed to fluctuate up to 2% up or down against the euro, in practice it almost never move by even tenths of a percentage point.

Thus reporting separately on how the Danish krone moves is really unnecessary, just as it is unnecessary to report on the movements of the Hong Kong dollar versus the U.S. dollar, which is always zero or very close to zero. Despite this, Bloomberg news strangely feels that these nonexistent exchange rate movements between the dollars of America and Hong Kong should be one of the four exchange rates (the others being the USD exchange rate of the yen, the Singapore dollar and the Australian dollar) in the Asia Pacific regions which they display in their Asia Pacific edition. It would be more interesting to see the movements of for example the [South] Korean won or the Indian rupee.