macroeconomics
trade relationships; it is not contained by borders. It has no single currency regime but rather uses a network of competing currency exchanges which preserves or enhances value of each utilized currency. It is governed only by the minimization of input costs, regulations and taxes. Tis networked economy includes everything which defines an economy: capital, labor, production capacity, capital assets, infrastructure of every kind, services of every kind, a retail market, a consumer base. Tis networked economy literally has a gross domestic product, yet does so without a domicile.
Tis networked economy is a large, advanced, borderless, global economy of no nation.
Part III: Horror Vacui A question has surely arisen at this
point: if slices of value exchanged at every node of a product network branch off into other networks, how much value reaches the initial point of production? In particular, what’s leſt? Te answer is very little. However, it’s sufficient enough to support the standard of living within that
particular currency’s border.
Tis is not difficult to achieve. Many emerging market economies maintain a socialist styled infrastructure; hence the cost of living is lower. In some emerging economies, the state regulates wages between the employer and employee. Tis is particularly important for
those states without
access to sufficient capital resources on its own. Tus, imported wages support the state.
To put this in perspective, consider the varying cost of labor in the European Union in Chart 1. It’s far less expensive to manufacture something in those countries at the top bars than at the bottom bars. A manufacturer in Denmark would, in theory, outsource to Bulgaria. In turn, the Bulgarian manufacturer might purchase components from China, who in turn might outsource
the component manufacturing to Vietnam. Money
flows from
Denmark to Bulgaria to China to Vietnam. It’s important to note that jobs are not lost to Bulgaria, China or Vietnam. If a better, more efficient product network could be found, it replaces the existing
product
network. Those manufacturing jobs are lost to the network. Denmark would experience a slight decline
FX TRADER MAGAZINE April - June 2016 47
FX
The value of a product network is made tangible by its equity representation in terms of the local currency
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