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I don't claim to be a finance professional, but I do tend to know something about it. If there is someone out there who knows more than myself who would like to make further suggestions or even corrections, please do.
Hi there L's!
I have a few comments/questions/suggestions about our currency exchange market and LL fiscal policy.
At first glance, our economy seems to use a free floating exchange rate (XR) which is determined by supply and demand. This seems all well and good until you begin to parallel our economy to RL ones.
In the real world, there are actually four parties that are concerned with a currency exchange transaction. There is the buyer, the seller, the bank which is facilitating the transaction and the Federal Reserve Bank.
The buyer and seller having obvious roles, let's move on to the facilitating bank. Thier role is to exchange the currency at the bid and ask rates (buying and selling, respectively) which are determined by things such as demand and supply of the currency and the volume of that currency which is traded regularly (more commonly traded currencies will have lower prices). The difference between the ask and bid rates are what the bank keeps as revenue for the transaction.
The job of the Fed is to control the monetary supply, deciding how much currency to make and destroy each day, which will in turn, determine the price at which banks ask and bid. Part of monetary policy is also using interest rates to control the XR but that isn't thus far relavent in SL.
Sorry for the finance lesson, but it seems that someone at LL may need it (no offense, please). Obviously because of the organization of our economy, LL acts as both the facilitating bank and the Fed, but nowhere in the usual course of things does it say that either the buyer or the seller can set their OWN price in a currency exchange.
LL does attempt to determine the market XR through making and destroying L$. However, LL doesn't have *control* over how much L$ is created because of the stipend system. I am not suggesting that stipends go away. I think our economy would crash and burn if that happened, as non-business owners would have no money to spend unless they bought currency. (It is a vicious cycle, I won't get deep into that.) As for destroying currency, it is obvious that we do not have enough money sinks to accomplish true fiscal policy. Which leads nicely into my suggestion.
LL should set the ask and bid price of currency. The difference would be the normal spread that citizens in the real world pay as a price for the exchange. Instead of keeping it as revenue (as L$ is worthless to LL when you really think about it), the money would simply become the sink, being destroyed and taking the currency out of circulation.
If there is part of this explanation that I left out, please do ask for clarification. I'm not a "sky-is-falling" kind of person, but when I see that someone is selling L$ for L2750/$1, I do get a bit concerned as a business owner. Our options as currency traders are to either sit with our L$ for sale at a quasi-reasonable rate of L295/$1 or to beat the underhanded people at their own game and undercut them by 1L, which leads to more inflation.