This chapter introduces simulations of how CRDs might have actually operated in the four different countries of Indonesia, Malaysia, Turkey, and Pakistan if they had been established in 2009. Two types of data are used, all from publicly accessible databases. The first is data on the annual quantity and cost of imports to each country for three or more years prior to the start of the simulation, from which each CRD's initial “Index” price for each commodity is calculated, as well as the size of the CRD's “Block” of reserves. The second type of data is quarterly market prices of each commodity, and the national exchange-rate where needed, through the period of the simulation, from which changes in the CRDs' reserves are calculated. For each country the level of reserves of the different commodities held by the CRD are clearly seen to automatically vary counter-cyclically as traders sell to or buy from the CRD at the prices in its price-schedule for each commodity.
Top10.1 Simulation Methodology
Simulations are a valuable tool for the government of any country either considering or planning to implement the Grondona system, enabling the operation of a national CRD to be evaluated over a range of scales and other conditions. In order for a government to decide the optimal conditions of implementation, it is clearly very valuable to be able to simulate the system’s operation in advance, including under a wide range of different conditions. Deciding the “gearing” of the system, which determines how it will operate, includes deciding
- 1.
which commodities and grades to include,
- 2.
the CRD’s initial price-levels for each,
- 3.
the maximum quantity of reserves to hold at each price level, and
- 4.
the steps in the price-schedule for each commodity.
The following simulations are based on the same principles and guidelines as discussed in Chapter 8, using Grondona’s suggested values of the system’s parameters. That is, the initial conditions of implementation were decided not with hindsight to try to achieve an optimal result, but based on the information that was available at the time of implementation, in order to produce a more realistic, although likely less than optimal, result. For this, past data on the annual quantities and costs (in domestic currency) of each of the four countries’ imports of the selected primary commodities were used to decide the conditions for establishing each CRD. Thus, for the following simulations starting as of 2009, data from 2006 through 2008 was used to decide the terms of implementation. The simulations then use quarterly or monthly commodity market prices, combined with data on the national exchange-rate where necessary to calculate commodity prices in the national currency, to calculate how the CRD would have responded. Notably this would have included what quantities of which commodities it would have been required to buy and/or sell each quarter over the time-period of the simulation.
For all four countries it is assumed that the CRD would have no substantial stabilizing influence on world commodity market prices. In reality, CRDs could have a significant stabilizing influence on some commodity prices at some times, in which case their purchases and sales, matched by the expansion and contraction of the money supply which they cause, would be reduced proportionately. Hence the following simulations somewhat overestimate the scale of the CRDs’ likely transactions, and so of their direct effect on each country’s national money supply.