RPing economic issues


  • ECoJ

    This is an issue that has been torturing me for a little while and since one of my characters was chosen to be the Commissioner for Economics, matters have got worse for me. So I'm going to use this as an opportunity to take some therapy counselling. There is an element of my OOC comments on the post about the impeachment of my character in the Commission and so I have deleted that post in order to let the impeachment thread flow in a more RP like manner.

    We have an issue with the RPing of economic matters that bear no relation to the likely outcomes had those actions taken place in the real world.

    The issue that has vexed me most (especially since I have been trying to RP an economics commissioner in an economically contradictory world) has been the role of the Euro and exchange rates. The issue I think stems probably years back to the formation of our EU institutions and the creation of the EU as a currency. Everything appears to have been in done in an arse about face order, with the currency being created and adopted by nations before the Central Bank which is required to control it. Similarly countries were until very recently free to choose to utilise the Euro or not as they saw fit. There were no responsibilities involved in being a member of the Eurozone and no consequences to whatever economic actions a nation took. Nations were free to duck in and out of the Euro without any regard to the likely consequences.

    All the consequences are wiped away by simply saying that the Euro is a fixed currency and therefore there are no foreign exchange issues by nations joining and leaving since the value of the Euro is fixed and is therefore unaffected by the changes.

    In the real world any of the Euro nations leaving the currency union would be an unmitigated financial disaster and would result in a recession far worse than the one caused by the financial collapse of 2008. It would hit all the economies of Europe, whether they are in or out of the Eurozone, whether they are large or small, strong or weak. The recession even a small debt ridden country like Greece leaving the Euro would cause, is likely to last beyond a decade. This why the Greek crisis just keeps rolling on and on. The real world nations of Europe know that they have to do everything they can to keep Greece in the Euro. A nation leaving the Euro would be quite likely to cause the end or at least the fragmentation of the European Union itself. This vulnerability isn't caused by the fact that in real life the Euro isn't a fixed currency. If the Euro had been a fixed currency (though I'm not sure to which currency it would pegged - possibly the dollar or the yen) then the speculators would certainly have identified areas of over-valuation and exploited it to make huge fortunes. But in the process they would have entirely trashed the EU economy. To prevent the wholesale exodus of capital and foreign exchange from the Eurozone, the Central Bank would have to raise interest rates and we would end up with an economy with high interest rates, high inflation and shortages of any product that is not produced from entirely home grown resources

    In our EU, the Euro is fixed against the NS$. The NS$ is a currency that plays no part in our RP and is irrelevant to us. There are regular reports from RP nations advising that they have a strong or strengthening currency (but never a weak or weakening currency). This indicates that these nations have floating currencies. When in my RP, I significantly reduced my interest rates, I was accused of currency manipulation. That indicates that my currency floats (or sinks lol). It is simply not possible to have a major fixed currency with neighbouring currencies floating around it. If in RL the ECB were to announce that the Euro was to be fixed against the USD in order to allow for nations to leave the Euro (which seems to be our RP position) then within a week currency speculators would have made a fortune and crashed every economy in the region (and possibly the American economy too).

    This how it works. Assume two economies in our RP operating floating currencies around a fixed Euro (RPE). For ease we'll call them the Framptonian Florin (FF) and the British Pound Sterling (GBP). If the economies all start at parity, so 1FF=1RPE=1GBP then everything is hunk dory. But then a crackpot Framptonian Finance Minister lowers interst rates dramatically and the FF weakens against the GBP, but not against the RPE because that currency is fixed. Let's assume that it weakens to the point where 2FF=1GBP (this isn't meant to be realistic, but the numbers are just easier to understand). But because the Euro is fixed it s exchange rates don't change. So someone with £100 could convert it into FF200, then convert this into RPE200 and then back into GBP but at a value of £200. They are doubling their money simply by moving it between currencies and through the fixed currency.

    The reason for this is because whilst the trading value of the RPE has been fixed, its actual value is linked to the relative values of the £ and FF. It is now overvalued against the GBP and under valued against the FF and this is the difference that the speculators exploit. If the only causes of the currency changes are the relative values of the GBP and FF then you might find that the true values of the Euro could be (though not necessarily) that 1RPE=FF1.33 and 1RPE=£0.67 (and you can see the symmetry here that £1=FF2). But that implies that the Euro is floating against the £ and FF and is not fixed at all.

    That is the conundrum that I have been trying to unpick as Commissioner for Economics.

    We have a problem that the fallacy at the heart of our RP Euro currency leads to our being able to make entirely implausible (if not impossible) economic outcomes from our actions.

    Take as an example the recent announcement by the Weiss Isles that they shall be leaving the Euro in 3 weeks and reverting to their previous currency (I'm using this as simply the most recent example. It's not designed to be a snipe at WI). This has been portrayed as giving the WI an economic boost and has lead to extra investment from the United Kingdom and the Duxburian Union. The WI economy accounts for about 12% of the economy of the Eurozone, which is 5 times greater than the proportion of the Eurozone that the Greek economy in real life. It also has the highest tax rates in the Eurozone and a significantly higher level of Government spending.

    The exit of WI from the Eurozone would require the WI Government to announce a conversion rate between the Euro and the new currency. The announcement would cause a massive devaluation in the Euro against the other currencies, which would effectively mean the size of the Euro economies shrinking against the non Euro economies. Until the new currency in WI becomes live, it is pegged to a devaluing Euro. There wouldn't be any capital flowing into WI, it would be heading in the opposite direction. The falling currency would mean that any foreign investor would find the cost of their investment rising in direct proportion to the falls in the currency.

    In reality, what is happening to our RP Euro would destroy our whole RP economy, but it being Rp'd as an economic success. I feel this is an issue we need to resolve.

    If we can't resolve it, then there is no point in having an Economics Commissioner, since it doesn't matter what they do the outcome can be as unrealistic as the RPing nation wants it to be.

    If we can't resolve it, then I'm afraid that the Framptonian Ministry of Technology will be obliged to unveil its recently invented jelly baby machine which turns all elements that cross its laser rays into jelly babies (much like the man in the Skittles advert). This will be of great value to Framptonia when Davishire invades (she is bound to sooner or later) as the Davishirian troops will simply be turned into confectionery, boosting the Framptonian economy, causing tonnes of inward investment and making the Framptonian Florin the strongest sugar based currency in the world.

    Bob from Framptonia (who has a very old degree in economics)



  • Moderator

    I think everything you've said is best summarized with your opening statement - We have an issue with the RPing of economic matters that bear no relation to the likely outcomes had those actions taken place in the real world.

    These problems with our economic RP are inherently instilled in the fact that our RP world is connected to NationStates, and the stats that we get from there. So whatever NS says about your nation's economy - for the most part - rings true. Of course, we try to usually keep this within the bounds of realism. So for example, is Inquista the farming and mining powerhouse that NS suggests it is? Absolutely not, seeing as in the RP world it's a completely urban city-state and therefore just not possible. Along with NS, we use NSEconomy to extract specific economic details for our RP nations. Essentially, our IC RP details come from OOC, off-site stats, which creates a disconnect between the two. So, for example, if all nations came together and sanctioned Davishire for whatever militaristic actions, it means nothing. Since Davishire is not affected by these RP sanctions on NS or NSEconomy, it doesn't hurt the IC Davishirian economy. In fact, it's actually possible for IC economies to grow, as long as they grow on NS, which means there is hardly any economic repercussions for anything done in RP. I too share your sentiment in believing that leaving the Euro would be problematic for the Weiss Isles. When the Weiss Isles asked me about the Inquistan investment prospects of him leaving the Euro, I told him it would mean that Inquistan investors would most likely withdraw their finances and capital from the country, seeing as it will be more expensive to operate there now. On top of that, the Weiss Isles is driven by a resource-based economy reliant on uranium mining. A stronger currency would mean higher prices for uranium, and higher wages for the mining workers. It just doesn't make sense as to why this would cause more British or Duxburian investment, and it wouldn't make any sense as to why it would help their economy. But this doesn't matter, as the Weissian economy will continue to grow in NS and NSEconomy, and thereby negate any of our concerns.

    This only brings us to the brings us to our problems, however. Our IC world is constantly changing, and it does so rapidly fast. Many nations very quickly enter and exit our RP world. As you say, the Weiss Isles represents 12% of the Eurozone. But what does this really mean in a system, where nations very quickly adopt the Euro, and then abruptly cease to exist within a matter of months? We constantly see a flow of new nations entering our global economy and then leaving it. This includes the The Weiss Isles, considering that they didn't exist in the Eurozone not too long ago itself. Who knows - maybe several larger economies will pop up and take their place in the Eurozone? It's very possible. Clearly, our global economy is extremely chaotic and messy.

    So we obviously have a conundrum here. We could address fundamentally everything you're saying by developing a system that correlates RP and IC events to our economies. So how should we develop this system, and how would be implement it? That's a whole another debate. I believe that there is currently a push for such a development under the eye of the UK/California, so we'll have to see how that goes. But for the most part, we have to accept this horrific messiness that is our IC global economy because we have no choice. We have to accept that dozens of nations will enter our economy and will leave it, they will join our financial institutions, withdraw or dissappear entirely, and we have to accept (atleast for now), that this is an economy based off NationStates, which is a ridiculous website as it is. But I would like to reiterate that this is a serious region that tries to overcome and compensate these fallacies with realistic measures. It doesn't always work, and sometimes it's simply just because the way it is. But this has to be done in order to keep things in order. Hopefully soon we develop an IC system like I mentioned earlier, but that's for another day.

    In the mean time, an Economics Commissioner is still highly useful. Even though IC events clearly don't correlate to the OOC stats we use, we would like to pretend that they do, and we thus need a Commissioner to run our economic institutions, develop our budgets and facilitate discussions on RP economic conflicts and/or areas of cooperation.


    P.S. We do actually have an IC system that does stop you from developing this jelly baby machine - check out the war system thread. But otherwise, adopting a sugar based currency could probably boost your economy if you decided to do it - and who knows, maybe it'll boost investment from the UK and the Duxburian Union too? 😝


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