Before 1914, there were three international currencies: the British pound, the French franc, and the German mark.
The Search for a New Currency System
Excerpt:
Markets aren't confident that the euro will exist in a decade's time, markets for Japanese yen aren't nearly large enough or liquid enough, and the Chinese are hesitant to assume the hassles that accompany the use of a country's currency as a store of value and medium of exchange around the world.
Barry Eichengreen, an economic historian at the University of California at Berkeley, argues that the world may end up with more than one full-fledged international currency. The old logic—that importers and exporters want a common unit of account and that both official and private investors will rely on the currency with the most liquid markets—is outdated, he says.
The notion that importers, exporters and bond traders all need to use the same currency "holds less weight in a world where everyone has a mobile phone that can compare currency values in real time," he says. The global economy is now so big "there is now room for deep and liquid markets in more than one currency."
Comment: Interesting article on the present state of currency exchange. It's a complex topic but basically countries that import more than they export (the US) and borrow heavily (again the US) risk currency devaluation. Currency devaluation makes our goods and services relatively less expensive and foreign goods and services more expensive. Perhaps you have traveled to a foreign country and found (as in my case going to Mexico in the late '60s) things there unbelievably inexpensive. Or have traveled to Europe only to find that a Coke costs $ 5.
Related articles in the news today:
ReplyDeleteGold above $ 1400
News that the Fed would buy back $600 billion of U.S. government bonds initially weakened the dollar and propelled commodity prices higher, particularly gold, which has gained nearly 30 percent this year so far.
Oil May Hit $90/Bbl
Oil is currently being driven by macro events, in particular dollar movements, they said.
"The price is becoming more and more disconnected from the supply and demand balance," said Hanson Westhouse oil and gas analyst David Hart. "Demand hasn't fired up, supplies are plentiful and there is capacity to bring on more supply if needed. If oil makes a sharp move up the market would be very questionable, possibly forming a bubble," he said.
Analysts warned that a further rise in the oil price would most likely be the result of increased speculation as the effects of quantitative easing, low interest rates and loose monetary policy create a wave of liquidity in the market.
"One of the reasons everyone is so upset with the Fed is that quantitative easing effectively juiced the market," said CMC Markets analyst Michael Hewson. The increased liquidity has to go somewhere "and there is a concern that all the money could create a commodity bubble."
Germany: 'The US Has Lived on Borrowed Money for Too Long'
The German export successes are not the result of some sort of currency manipulation, but of the increased competitiveness of companies. The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. There are many reasons for America's problems, but they don't include German export surpluses.