April 27th, 2013

fedora 蓝色小药丸

Some rant about diversification

  • Sat, 10:25: Any currency can be correlated to local online community, in terms of activity and reason of segmentation, or the lack thereof.

Because people has to diversify the risk of holding one currency (here it is CNY), and gold is such a diversifier because 1. in a local community people believe it can replace current CNY in preserving/exchanging wealth; 2. people believe other communities share the same belief; 3. the barrier between communities lasts forever.

If one community believes in the other one will hold gold, it will also try to hold gold. If everyone has some gold, it may at some time in a local area actually replace all other currencies. The problem is how strong the belief of above 3 holds. I hear that extreme situations are investigated in research, but how?

Apparently barrier cannot be removed because of stronger control to wealth. Labour, goods, money, at any time something must be controlled. I suppose in a transient system, the desire to preserve wealth (thus the barrier) is low to none. The extreme situation for #3 thus is a kind of periodical center of exchange. Another extreme is there is the strongest control (no intersection).

In either situation, there are 4 combinations to #1 and #2 assumptions. And the output is not so simple. I guess if any one of the assumptions no longer holds, then gold becomes regular goods (and will fall in value like a piece of paper). So in "no-barrier" case, prove gold is just a regular good; in "strongest control" case, prove gold is a regular good if #1 or #2 does not hold. It sounds easy?

Now think how this helps to compare currency appreciation and online community. The activity and reason of segmentation does not matter. I may compare apples to oranges. The barrier is both political (GFW for example) and cultural (few people use facebook even there is no GFW). Will facebook users try to hold some Q currency to diversify one's wealth? Will Chinese people buy more gold? Will you dig BitCoins?

Another question, the Chinese people are allowed to exchange some USD every year. Nobody use this quota to diversify one's wealth. Why use gold as a diversifier? Maybe it is not a question of "what is the best diversifier for Chinese", but "is diversify necessary at all", esp. for myself, as I don't own a property yet. Similarly some people in the US may need to hold foreign assets, or directly hold foreign currency, but not average Joe. I currently live in the US, so USD is useful to me. And if I moved, I should not try to treat USD as "diversifier". If not, then CNY is not my "diversifier" either. In any case, gold is not my diversifier. So average Chinese are too speculative in this matter.

Feel sorry cannot think clearly and ask the right question. Some higher education may be helpful. Reduce one's wealth to get some understanding to other people's wealth. Well, it is not about money.. just confused. What's one's mission? Is it anywhere in my personal interests?