Terms of Trade Calculation As Guide for Currency Value Within Which Free Market Mechanisms Fine-Tunes a Currency Price

Central banks fine-tune a currency price frequently based on a set of criteria, most of which revolves around currency stability. However, some of the criteria may be to boost exports by engineering an artificial low price for a currency, that is below market expectations. Such criteria may be subjective and non-scientific, hence, vulnerable to manipulations by special interest groups. To help move economic decision making to the scientific realm, especially with regards to determining the price of a currency, which in turns, set the tone for an economy, more scientific measures must be developed to set the bounds on the price of a currency. One such possibility arises with terms of trade calculation of a currency price. Briefly, terms of trade concerns the trading position of a country with respect to aggregate imports and exports. For a fair trading position based on aggregate value, terms of trade calculation would yield a value that could set the bounds of a currency's price, within which it could fluctuate. This does not mean that terms of trade valuation of a currency is a return to command and control style economic management. In fact, terms of trade valuation provide a scientific measure to a currency price that is fair to an economy, and is free of manipulation by political special interest or big investors in the currency markets. The system so construes still fundamentally rely on the free market mechanism to determine the final price of a currency through modulating supply and demand of the currency. In essence, this is a fundamentally freely convertible currency whose price is determined by free market mechanisms, but where excessive gyration is kept in check by bounds set forth by terms of trade valuation of a currency. In this setting, movement in currency price in excess of bounds set by terms of trade valuation would activate open market operations by the central bank to return normalcy to currency trading, and protect the broader economy of a country