This post is an attempt to spark conversation around some important questions related to Silk’s peg composition.
Silk’s current composition has been heavily tested and researched. At the same time, the currencies included were limited based on available oracles.
Modifications of any kind would be a lengthy process and require the same intensity of research and modeling.
A couple questions for discussion:
Japan has the highest debt to GDP ratio of any country. You are probably familiar with the idea of a tipping point for countries in the viability of their currency. It happens when the interest on their debt outpaces GDP. At that point, it’s a bit like opening up a new credit card to make payments on your old credit card. EU and US are also in this situation where we print in order to service international debt. I’m sure this is not new information to most.
Is it more important for Silk to reflect global value or responsible monetary policy?
If economic data indicates that that a currency (included in Silk’s basket) is being propped up by governmental gymnastics, is it better for Silk to:
a) Ride the scenario out even if we see its a house of cards and react only when the house of cards actually collapses
b) Proactively assess risk, devaluation, bad monetary policy – and then remove it from the basket before scenario a occurs
Said differently, should Silk’s basket change when a currency is unmistakably flatlined or should we look to preempt those moments?
This isn’t a suggestion to pull USD or anything like that. JPY may be worth a look. But it’s more of a philosophical question of “when” would a re-composition discussion happen. The currencies mentioned are just a relevant case study.
Thanks for your input.