Nowadays, industrialized countries employ a hybrid system of managed floating exchange rates, neither freely floating nor rigidly fixed. After the financial crises in the UK in 1992, Southeast Asia in 97-98, and Latin America in 2001, which reflect that currencies are unexpectedly speculative and volatile 1. The primary causes of the issue stem predominantly from governmental mismanagement, compounded by substantial outstanding debts, including significant short-term liabilities owed to local firms. This debt accumulation reflects a strained fiscal policy and liquidity management, potentially exacerbating economic instability. However, to what extent is the currency crisis expanding into a regional and global economic problem? What causes the currency crisis, and how can we redefine the new currency system and its value? Is speculative money, driven by hedge funds, responsible for destabilizing the currency system? What forces will push and pull the currency? This research paper aims to provide answers through in-depth analysis and tools to understand the root causes of the currency system. This research paper has two main objectives. First, it will examine the currency systems from the perspective of the G7, Central Bank, Hegde fund and citizen, strategy and decision making. Then, it will reinterpret the J-curve effect not as a tool for analyzing trade conditions, surpluses, or deficits, but as a means to address some aspects of currency dynamics. We will use the J-curve effect and to analyze them together. To support our innovative Four Force Currency theory.
Lie Chun Pong (Wed,) studied this question.