By
www.TheForexNittyGritty.com
Most Forex traders view the US dollar as a safe haven
currency.

http://www.theforexnittygritty.com/forex/
world-reserve-c...
After all, the USD accounts for nearly two thirds of
foreign currency reserves held by the central banks of
the world.

ht...
The Euro holds second place with just under a fourth
of all currency reserves.

http://www.theforexnittygritty.com/forex/
...
There are a number of advantages to the USA of
having what amounts to the world reserve currency.

http://www.theforexnitt...
Virtually all commodities are denominated in US
dollars. The USD is part of eighty-five percent of all
Forex trades.

http...
Many foreign contracts are written in US dollars even
though the USD is not the home currency of either
party.

http://www...
And, when the United States wants to borrow money
to finance its ever-growing debt, everyone still is willing
to purchase ...
There is no risk in the short term that this situation will
change because of the fact that the US economy is far
and away...
However, there are a couple of concerns regarding the
status of the dollar as the world reserve currency.

http://www.thef...
These are the risk of debt default due to a
malfunctioning political system in the USA and
continuing long term devaluatio...
Foreign currency trading serves two purposes.

http://www.theforexnittygritty.com/forex/
world-reserve-currency
First and foremost the Forex market exists to facilitate
international trade and the movement of wealth.

http://www.thefo...
Companies that do business in the international arena
and people who earn their money in unstable regions
of the world pre...
The second purpose is speculation.

http://www.theforexnittygritty.com/forex/
world-reserve-currency
Currency speculators do not especially care for stable
currencies.

http://www.theforexnittygritty.com/forex/
world-reserv...
Rather they would prefer that the USD is going up or
down but not standing still.

http://www.theforexnittygritty.com/fore...
The status of the USD as the world reserve currency
affects its use in international trade and it especially
affects the u...
Short versus Long Term
Competition for World
Reserve Currency
Status

http://www.theforexnittygritty.com/forex/
world-rese...
Given the economic weakness of the European Union
and speculation as to its breakup the Euro poses no
short term threat th...
China is intent on making the Yuan an international
currency.

http://www.theforexnittygritty.com/forex/
world-reserve-cur...
However, the Yuan exchange rate is fixed within a
government prescribed trading range.

http://www.theforexnittygritty.com...
And, the Yuan is to a large degree an instrument of
economic and political policy of the ruling Communist
regime in Beijin...
The Chinese economy is a fraction of that of the USA
and would need to continue its breakneck pace of the
last couple of d...
And cracks are showing in the Chinese economic
miracle just recently addressed by the Communist
hierarchy. In all likeliho...
To be a world reserve currency means that the
currency needs to engender confidence.

http://www.theforexnittygritty.com/f...
The Euro is currently questionable. None other is as
strong.

http://www.theforexnittygritty.com/forex/
world-reserve-curr...
And until China lets its currency float with the market it
will engender no confidence as a safe haven or world
reserve cu...
Threats to the USD as
World Reserve Currency

http://www.theforexnittygritty.com/forex/
world-reserve-currency
The USD will probably adjust downward a bit as the
Fed continues its quantitative easing program.

http://www.theforexnitt...
It may jump up as the Fed backs off and interest rates
go up.

http://www.theforexnittygritty.com/forex/
world-reserve-cur...
But over time a weaker dollar will help the USA bring
manufacturing back home and stimulate the economy.

http://www.thefo...
If the dollar continues to fall, year after year, it could
eventually be too cheap to be a world reserve
currency.

http:/...
After all who wants to hold a currency that is on its way
to being worth pennies on the dollar?

http://www.theforexnittyg...
This scenario is not likely to happen and certainly not
in the near future.

http://www.theforexnittygritty.com/forex/
wor...
However, a viable threat is the current dysfunction of
the US government.

http://www.theforexnittygritty.com/forex/
world...
Those who wish to park their wealth in a stable
currency are not pleased to think that tomorrow they
will not receive inte...
To quote Abraham Lincoln,
if destruction be our lot we must ourselves be its
author and finisher.

http://www.theforexnitt...
Or,
we have met the enemy and he is us,

Pogo Possum.

http://www.theforexnittygritty.com/forex/
world-reserve-currency
World Reserve Currency
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World Reserve Currency

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World Reserve Currency

Most Forex traders view the US dollar as a safe haven currency. After all, the USD accounts for nearly two thirds of foreign currency reserves held by the central banks of the world. The Euro holds second place with just under a fourth of all currency reserves. There are a number of advantages to the USA of having what amounts to the world reserve currency. Virtually all commodities are denominated in US dollars. The USD is part of eighty-five percent of all Forex trades. Many foreign contracts are written in US dollars even though the USD is not the home currency of either party. And, when the United States wants to borrow money to finance its ever-growing debt, everyone still is willing to purchase United States Treasuries with their currency. There is no risk in the short term that this situation will change because of the fact that the US economy is far and away the largest in the world. However, there are a couple of concerns regarding the status of the dollar as the world reserve currency. These are the risk of debt default due to a malfunctioning political system in the USA and continuing long term devaluation of the USD.

Risk Hedging versus Speculation

Foreign currency trading serves two purposes. First and foremost the Forex market exists to facilitate international trade and the movement of wealth. Companies that do business in the international arena and people who earn their money in unstable regions of the world prefer a stable currency for doing business and storing wealth. The second purpose is speculation. Currency speculators do not especially care for stable currencies. Rather they would prefer that the USD is going up or down but not standing still. The status of the USD as the world reserve currency affects its use in international trade and it especially affects the use of the USD as a safe haven currency.

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Transcript of "World Reserve Currency"

  1. 1. By www.TheForexNittyGritty.com
  2. 2. Most Forex traders view the US dollar as a safe haven currency. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  3. 3. After all, the USD accounts for nearly two thirds of foreign currency reserves held by the central banks of the world. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  4. 4. The Euro holds second place with just under a fourth of all currency reserves. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  5. 5. There are a number of advantages to the USA of having what amounts to the world reserve currency. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  6. 6. Virtually all commodities are denominated in US dollars. The USD is part of eighty-five percent of all Forex trades. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  7. 7. Many foreign contracts are written in US dollars even though the USD is not the home currency of either party. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  8. 8. And, when the United States wants to borrow money to finance its ever-growing debt, everyone still is willing to purchase United States Treasuries with their currency. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  9. 9. There is no risk in the short term that this situation will change because of the fact that the US economy is far and away the largest in the world. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  10. 10. However, there are a couple of concerns regarding the status of the dollar as the world reserve currency. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  11. 11. These are the risk of debt default due to a malfunctioning political system in the USA and continuing long term devaluation of the USD. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  12. 12. Risk Hedging versus Speculation http://www.theforexnittygritty.com/forex/ world-reserve-currency
  13. 13. Foreign currency trading serves two purposes. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  14. 14. First and foremost the Forex market exists to facilitate international trade and the movement of wealth. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  15. 15. Companies that do business in the international arena and people who earn their money in unstable regions of the world prefer a stable currency for doing business and storing wealth. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  16. 16. The second purpose is speculation. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  17. 17. Currency speculators do not especially care for stable currencies. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  18. 18. Rather they would prefer that the USD is going up or down but not standing still. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  19. 19. The status of the USD as the world reserve currency affects its use in international trade and it especially affects the use of the USD as a safe haven currency. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  20. 20. Short versus Long Term Competition for World Reserve Currency Status http://www.theforexnittygritty.com/forex/ world-reserve-currency
  21. 21. Given the economic weakness of the European Union and speculation as to its breakup the Euro poses no short term threat the USD as world reserve currency. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  22. 22. China is intent on making the Yuan an international currency. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  23. 23. However, the Yuan exchange rate is fixed within a government prescribed trading range. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  24. 24. And, the Yuan is to a large degree an instrument of economic and political policy of the ruling Communist regime in Beijing. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  25. 25. The Chinese economy is a fraction of that of the USA and would need to continue its breakneck pace of the last couple of decades to catch up. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  26. 26. And cracks are showing in the Chinese economic miracle just recently addressed by the Communist hierarchy. In all likelihood no one is going to want to store value long term in Yuan when they can put all of part in the USD, Euro, British Pound, or Swiss franc. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  27. 27. To be a world reserve currency means that the currency needs to engender confidence. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  28. 28. The Euro is currently questionable. None other is as strong. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  29. 29. And until China lets its currency float with the market it will engender no confidence as a safe haven or world reserve currency. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  30. 30. Threats to the USD as World Reserve Currency http://www.theforexnittygritty.com/forex/ world-reserve-currency
  31. 31. The USD will probably adjust downward a bit as the Fed continues its quantitative easing program. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  32. 32. It may jump up as the Fed backs off and interest rates go up. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  33. 33. But over time a weaker dollar will help the USA bring manufacturing back home and stimulate the economy. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  34. 34. If the dollar continues to fall, year after year, it could eventually be too cheap to be a world reserve currency. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  35. 35. After all who wants to hold a currency that is on its way to being worth pennies on the dollar? http://www.theforexnittygritty.com/forex/ world-reserve-currency
  36. 36. This scenario is not likely to happen and certainly not in the near future. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  37. 37. However, a viable threat is the current dysfunction of the US government. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  38. 38. Those who wish to park their wealth in a stable currency are not pleased to think that tomorrow they will not receive interest on their US treasuries or that the US could default on its sovereign debt. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  39. 39. To quote Abraham Lincoln, if destruction be our lot we must ourselves be its author and finisher. http://www.theforexnittygritty.com/forex/ world-reserve-currency
  40. 40. Or, we have met the enemy and he is us, Pogo Possum. http://www.theforexnittygritty.com/forex/ world-reserve-currency

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