I am not hardcore on forex trading BUT, I did read where interest rates were part of the equation for controlling currency prices. Monetary theory? Would be nice to have that in bit currencies.
Central banks set their borrowing rates from which the banks can borrow and lend. The interest is paid to the central bank from borrowing. The different currencies have different interest rates for holding it, thus creating a SWAP essentially where you have to pay to hold the currency pair or you get paid to hold it, i.e.: GBP/JPY where GBP interest rates where higher than JPY which had major deflationary issues before BOJ stepped in to intervene in the market to sell massive amount of JPY because people were buying JPY (at low interest) and selling GBP at higher interest creating a positive SWAP carry trade. Around the time when the central bank releases their interest rate statement you sometimes see carry trades unwinded affecting the market in mass.
The problem is once there is an interest rate applied it is subject to manipulation and speculators will feast on it to create extreme circumstances where external stimulius needs to be applied, kind of like what the bond vigilanties and carry traders which have incentive to cause JPY to rise because its cheap to borrow vs any other currency. Once BOJ stepped in I knew this wasn't going to end pretty, you have BOJ/SNB and many other central banks intervening which creates incentive to force their hand for almost free money (which is printed anyway).
An incentive should in this case needs to be totally decentralized and its hardt o see right now that if an interest based stimilus was added that it would avoid central authority or stimilus later on because its hard to cover 100% of the angles before hand, im guessing this is why this kind of thing is left out until we use the system quite a bit.
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