International Issue:

Between 2 countries (i) interest rate comparison inaccurate (ii) currency exchange rate inaccurate (iii) balance of payment current account deficit, due to interest compounded, make poor nation poorer. So when they say 'forgiveness of debt' to a poor country, question is what they forgive, part of the interest they made payable (by compounding) or part of the lump sum lent to poor country.

(i) Disparity of interest rate comparison:

         Different frequency of compounding (monthly, quarterly, half yearly, annually), exist in different countries. Say 7% p.a. compounding quarterly in one country is NOT same as 7% p.a. compounding monthly in another country.

        Ready Reckoner shows this difference. The interest rate existing in different countries are incomparable.

(ii) Exchange Rate wrongly determined:

        The currency exchange rate between two countries is directly proportional to interest rate increase or decrease in that country. When the interest rate goes up in a country, that country’s currency is demanded more by investors (to invest in that country, as they will get more interest income), so the currency exchange rate goes up, vice versa.

        Since (i) above, interest rates are incomparable, the exchange rate determined on this basis is meaningless or baseless or totally wrong in the past 40 or 50 years

(iii) Balance of payment/ Current account deficit, interest:

        Say, a person living in one country sends money to one in another country (as payment for goods and services or as a gift or simply a transfer of payment), directly paid into the bank account of the one in another county.

 

        At a macro level, this transaction involves the Reserve bank of the sender and Reserve Bank of receiver as an accounting entry (not as physical cash).

 

        Sender country's reserve bank will owe that amount to the receiver country's reserve bank. This causes a ‘debt’ for sender’s country. On the debt, interest is usually charged by the receiver’s country reserve bank. Interest is compounded. Sender's country (when transfers are in  billions and trillions of dollars) will have ‘debt’ of that amount to various receivers countries.

 (iv) Fixed Currency & Floating Currency:

        In case of floating currency (i.e. for those countries whose currencies are listed in Currency Exchange Market) exchange rate is determined by (i) interest rate and (ii) demand and supply of its currency in Currency Exchange market (comparable to share market for listed company shares).

        In case of fixed currency (i.e. currencies of countries that are NOT listed in Currency Exchange Market), their exchange rate is determined by the ‘Balance of Payment/ Current Account deficit’, Gold and Silver that country's Reserve Bank holds.  This  is comparable to a Private (proprietory) limited company’s share value, which is dependent (NOT on demand and supply) on the NET assets owned by that company).

        Currency value would get deteriorated for a country that has ‘debt’ and and its currency is not floating in currency exchange market and vice versa.

        This makes country with floating currency to turn richer and vice versa,

         regardless of productivity in that country.

        Once the ‘Balance of Payment/ Current account deficit’ goes to certain point, that country’s currency will be ‘devalued’ (lose exchange value), making the ‘debt’ to go further into debt.

        Settlements of international debts is done in US$, (£) British Pounds, or Euros.

        So these currencies will be more in demand.  Obviously these countries currencies are just LUCKY! or is it the largest single well planned conspiracy making them richer than others.

        For example, there is a 'lucky winner', in a lottery. The system is mobilisation of funds from vast majority of people to a few 'lucky winners'.

       

        The truth is it is based on mathematical probability calculation that helped the planners to decide how many numbers to be chosen from how many in a lot.

 

        Similarly there is a clever plan behind only a few currencies accepted in transaction settlements and only a few currencies are listed in the Currency Exchange Market.