Currency crisis Essay Example | Topics and Well Written Essays - 1500 words

Currency crisis - Essay Example However, his academic excellence and outstanding performance in various portfolios he has held proves his critics wrong (Blackden 2012). The responsibility of salvaging the United Kingdom’s currency crisis will be his primary responsibility as the governor of the Central Bank of England. Blackden’s article in The Telegraph highlights some of the attributes that Mark Carney possess that makes him a good choice for the position. The article clearly outlines possible ways that economists think Mark Carney would use to restore Britain’s dwindling economy. In this way, it has proved and highlighted some of the theories proposed earlier by economists in their attempts to explain the causes and ways of minimizing currency crisis. Mark Carney has been portrayed to believe in closer supervision and maintenance of high capital requirements for large financial institutions (Blackden 2012). This is opposed to what Sir Mervyn King advocates. However, it is worth noting that u nderdevelopment of the banking sector can cause a currency crisis. This is because the central bank may focus on financing the banking sector to bail them from their financial problems at the expense of maintaining the peg (Komulainen 1999). This may bring currency instability leading to a currency crisis. ... This is aimed at making the financial system safe as the economy recovery process is being conducted. It is similar to the canonical currency-crisis model. This model as proposed by Stephen Salant asserts that speculators have tendencies of holding exhaustible resources with expectations that their prices would rise. The increase in the prices of these resources will then offer the speculators a return rate equivalent to other assets (Krugman n.d.). In this way, the exchange rates would be stabilized. Therefore, it is necessary to comprehend Blackden’s assertion on the need for Mark Carney to empower British banks to hold massive capital. New-wave theories have also explained that recent currency crises affecting various countries are as a result of the weak banking systems. Therefore, holding massive capital would imply that the banks can sustain themselves and would not need bailing from the central bank (Fourcans & Franck 2003). In this scenario, the central bank will preve nt a possible currency crisis. The article also mention that Mark Carney would urge United Kingdom’s leading companies to invest in new markets such as Brazil, China and India. Opening up and venturing into new markets would help Britain a great deal since it would steer the economy to a fast-paced recovery process (Fourcans & Franck 2003). On the other hand, venturing into foreign and emerging markets would give investors the confidence that the currency is stable; thus, they would not withdraw from the British market due to fear of imminent collapse of the economy (Fane 2000). Additionally, Mark Carney’s appointment is expected to save UK from the imminent effects of the on-going Euro zone crisis. This is because the United Kingdom depends on foreign money to fund most of its pertinent