Agricultural Commodity Markets: Reference Point for the Real Value of a Currency

DOI: 10.4236/me.2014.55050   PDF   HTML     3,838 Downloads   4,747 Views  

Abstract

Using monthly time-series data 1999-2013, the paper shows that markets for agricultural commodities provide a yardstick for real purchasing power, and thus a reference point for the real value of fiat currencies. The daily need for each adult to consume about 2800 food calories is universal; data from FAO food balance sheets confirm that the world basket of food consumed daily is non-volatile in comparison to the volatility of currency exchange rates, and so the replacement cost of food consumed provides a consistent indicator of economic value. Food commodities are storable for short periods, but ultimately perishable, and this exerts continual pressure for markets to clear in the short term; moreover, food calories can be obtained from a very large range of foodstuffs, and so most households are able to use arbitrage to select a near optimal weighting of quantities purchased. The paper proposes an original method to enable a standard of value to be established, definable in physical units on the basis of actual worldwide consumption of food goods, with an illustration of the method.

Share and Cite:

McFarlane, I. (2014) Agricultural Commodity Markets: Reference Point for the Real Value of a Currency. Modern Economy, 5, 533-540. doi: 10.4236/me.2014.55050.

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1] Cooper, R.N. (1999) Exchange Rate Choices (No. 1877). Harvard Institute of Economic Research, Harvard University.
ftp://dlib.info/RePEc/fth/harver/hier1877.pdf
[2] Deaton, A. and Laroque, G. (2003) A Model of Commodity Prices after Sir Arthur Lewis. Journal of Development Economics, 71, 289-310.
http://dx.doi.org/10.1016/S0304-3878(03)00030-0
[3] Ghosh, J. (2011) Implications of Regulating Commodity Derivatives Markets in the USA and EU. PSL Quarterly Review, 64, 287-304.
[4] Clapp, J. and Helleiner, E. (2012) Troubled Futures? The Global Food Crisis and the Politics of Agricultural Derivatives Regulation. Review of International Political Economy, 19, 181-207.
http://dx.doi.org/10.1080/09692290.2010.514528
[5] FAO (2014) The State of Food and Agriculture 2013.
www.fao.org/docrep/018/i3300e/i3300e.pdf
[6] Powell, A. and Sturtzenegger, F. (2007) Deciding on Monetary Integration: An Operational Approach.
http://www.researchgate.net/
publication/4892971_Deciding_on_Monetary_
Integration_An_Operational_Approach/file/9c960521bb3db5ff4d.pdf
[7] Dellas, H. and Tavlas, G. (2009) An Optimum-Currency-Area Odyssey. Journal of International Money and Finance, 28, 1117-1137.
http://dx.doi.org/10.1016/j.jimonfin.2009.06.001
[8] Mundell, R. (2012) The Case for a World Currency. Journal of Policy Modeling, 34, 568-578.
http://dx.doi.org/10.1016/j.jpolmod.2012.05.011
[9] Rogoff, K. (2001) Why Not a Global Currency? American Economic Review, 91, 247-247.
http://dx.doi.org/10.1257/aer.91.2.243
[10] Starr, M.A. (2006) One World, One Currency: Exploring the Issues. Contemporary Economic Policy, 24, 618-633.
http://dx.doi.org/10.1093/cep/byl006
[11] Clements, K., Lan, Y. and Roberts, J. (2008) Exchange-Rate Economics for the Resources Sector. Resources Policy, 33, 102-117.
http://dx.doi.org/10.1016/j.resourpol.2007.12.003
[12] Crucini, M., Shintani, M. and Tsuruga, T. (2008) Accounting for Persistence and Volatility of Good-Level Real Exchange Rates: The Role of Sticky Information. Working Paper 14381, NBER Cambridge.
[13] Clements, K. and Fry, R. (2008) Commodity Currencies and Currency Commodities. Resources Policy, 33, 55-73.
http://dx.doi.org/10.1016/j.resourpol.2007.10.004
[14] Cashin, P., Céspedes, L. and Sahay, R. (2002) Keynes, Cocoa, and Copper: In Search of Commodity Currencies. IMF Working Paper WP/02/233.
[15] Rogoff, K. (1996) The Purchasing Power Parity Puzzle. Journal of Economic Literature, 34, 647-668.
[16] Baffes, J. and Haniotis, T. (2010) Placing the 2006/08 Commodity Price Boom into Perspective. World Bank Policy Research Working Paper WPS5371.
[17] Lind, K.M. (1999) Long-Run Behavior and Uncertainty in World Cereal Markets. Ministeriet for Fødevarer, Landbrugog Fiskeri, Statens Jordbrugsog Fiskeriøkonomiske Institut.
[18] Newbold, P., Rayner, T. and Kellard, N. (2000) Long-Run Drift, Co-Movement and Persistence in Real Wheat and Maize Prices. Journal of Agricultural Economics, 51, 106-121.
http://dx.doi.org/10.1111/j.1477-9552.2000.tb01212.x
[19] Roberts, M. and Schlenker, W. (2009) World Supply and Demand of Food Commodity Calories. American Journal of Agricultural Economics, 91, 1235-1242.
http://dx.doi.org/10.1111/j.1467-8276.2009.01290.x
[20] Piesse, J. and Thirtle, C. (2009) Three Bubbles and a Panic: An Explanatory Review of Recent Food Commodity Price Events. Food Policy, 34, 119-129.
http://dx.doi.org/10.1016/j.foodpol.2009.01.001
[21] UK Dept of Health (1991) Dietary Reference Values for Food Energy and Nutrients for the United Kingdom. HMSO, UK.
[22] McFarlane, I. (2012) Commodity Currency: An Alternative Route to Currency Union. Modern Economy, 3, 139-144.
http://dx.doi.org/10.4236/me.2012.32019
[23] Ravallion, M. (2008) Dollar a Day Revisited. The Selected Works of Martin Ravallion.
http://www.esocialsciences.org/GMU_Programs/Data/3.%20Dollar%20a%20Day%20Revisited.pdf
[24] Holland, B., et al. (1991) McCance and Widdowson’s the Composition of Foods. 5th Edition, Royal Society of Chemistry, London.

  
comments powered by Disqus

Copyright © 2020 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.