Monthly Archives: September 2003

Hedging the Dollar

Posted on September 19, 2003 by Michael Froomkin

Brad DeLong, who I’ve known since grade school and who writes a wonderful semi-daily journal, does not hedge as he puts into words something I’ve been wondering about for a couple of weeks: “why foreign exchange traders, gibbering in terror as they look at the U.S. trade deficit, haven’t dumped the dollar, pushing it down in value”. My answer to that question might lean a bit more on the traders’ belief that the Euro isn’t yet a reliable reserve currency — maybe there’s a shortage of perfect substitutes for the dollar. But if that’s right, it also follows that it should be a major objective of US fiscal policy to ensure that the dollar remains more attractive than the Euro. Even a partial switch to the Euro would be a catastrophic event (in both senses of the word). The Bush administration’s complacency on this issue appears to have one or more of these three causes: lack of imagination, lack of intelligence (that seems to be Brad’s guess), or the completely mendacious short-termism more commonly associated with barbarians looting the city.

But enough theory. Suppose I believe that the dollar is over (or under) valued. Short of buying foreign currency at ruinous bank rates, which then would require an account to hold them, or buying short term currency futures which expire too fast, what sort of foreign-currency-denominated asset is there that I can acquire on reasonable terms (small lots, low transactions costs)? Who markets currency hedges to households? Any single foreign stock or bond is too risky, if only because I am too ignorant to pick one. And the so-called foreign-currency bond funds on offer that invest in the major stable currencies (as opposed to emerging market funds) seem, when you look at them carefully, to hold amazing amounts of US government bonds. Many of them are also set up in ways that appear designed to allow speculation on medium- to long-term interest rate differentials rather than currency rates — you buy a dollar’s worth of the fund, and the price stays fixed, with returns fluctuating over time primarily as a result of changes in interest rates. Is there a market opportunty here, or is it already filled?

Posted in Econ & Money | 4 Comments

Virtual Worlds, Real Rules

Posted on September 19, 2003 by Michael Froomkin

I am off to Washington, DC to attend the 31st Research Conference on Communication, Information and Internet Policy known to all as TPRC, for Telecommunications Policy Research Council. Here’s the abstract of Virtual Worlds, Real Rules (.pdf), the paper I’ll be co-presenting with Caroline Bradley — who is more than just a co-author:

In Virtual Worlds such as Ultima Online and Everquest, the Internet may accidentally provide an environment that lends itself well to the testing of legal rules.

A growing literature suggests that there is a relationship between certain legal rules and economic well-being. Data about the economic consequences of rules would enormously enrich debates over economic regulation. Unfortunately, in the real world experimenting with legal rules can be costly and risky. Some scholars of comparative law attempt to draw lessons by comparing the diverse experiences of different countries, but these efforts too often fall prey to errors of cultural, not to mention legal, translation.

Virtual worlds could permit experiments without the real-world costs of bad rules or regulatory competition. Existing role playing games tend to include internal market regulations that resemble those seen in Western capitalist economies. These rules could be changed, or different versions of the game might use different variants. Online role playing games would provide better data than economic models because it should be possible to design the games to reduce the number of assumptions involved. Moreover, game participants are likely to care about outcomes more than participants in laboratory-based experiments, if only because resource constraints force these to be conducted for low stakes.

Despite the name, and the historic focus on straight telecoms, in the past four or five years TPRC emerged as the place to go for interesting work on Internet and e-commerce. Uniquely among the conferences I attend, the organizers were not only interdisciplinary, but managed a good mix of business school and law school types. Even more unusual was the positively military insistence that papers be in on time, well before the conference, or you lost your free admission. In my experience TPRC draws very good papers from very good people. In its former venue TPRC had great soft chairs in the common area, where you could sit for hours talking to colleagues while missing out on sitting on the hard chairs in the lecture rooms.

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Posted in Law: Internet Law, Writings | 5 Comments

A New Blog

Posted on September 15, 2003 by Michael Froomkin

The world needs another weblog like a hole in the head. It seemed to me, though, that I had a few things to say. And although I’ve been running a weblog called ICANNWatch for years, it’s very specialized, and unsuited for more personal musings. So here it is.

In future posts I’ll try to say a little more about who I am and what my interests are. My main goal right now is getting the site running and redoing the templates. If you stumble on this now, before the official roll-out, I suppose I ought to point out that I also have an official (boring) homepage, and a somewhat more interesting personal homepage at law.tm–although it’s a little disorganized.

Posted in Discourse.net | Comments Off on A New Blog