There are two separate but related developments lifting the euro to its best level in three-months against the US dollar.
First, the US economy is off to a disappointing start to Q2 after it appears to have contracted by around 1% annualized pace in Q1. The strong bounce back after the contraction in Q1 14 has thus far not materialized.
Tajikistan’s government is struggling to prop up its currency amid downward fiscal pressure emanating from Russia. Dushanbe’s policies appear to be creating a black market for currency traders with potentially long-term repercussions for the ailing economy.
In recent years, Argentina has come to be known for its highly volatile currency values and myriad problems with its banks. As a result, many in Argentina find themselves wishing for a more stable and secure currency and banking system.
Bitcoin is a form of “digital currency” (or “cryptocurrency,” as some call it, due to its encrypted, highly secure nature). Often synonymous with illegal dealings in the United States, thanks in large part to illicit websites like The Silk Road, Bitcoin has only just begun to make an impression on the American consumer.
The attention of financial markets often gets fixated on an index of measure and not on the effectiveness, purpose or the objective of the measure. The dollar index, in its current form, practically from 1973, is a classic case on it.
At the end of each quarter, the IMF reports on currency reserve holdings by central banks for the preceding quarter. What investors are most interested in is the currency allocation of those reserves.
Not all central banks report the allocation of their reserves. Indications are that China, the world’s largest holder of reserves, does not report the allocation of its reserves. If it wants the yuan to be included in the SDR basket, it is probably a good idea to adopt the IMF’s best practices.
It is precisely because the euro’s decline is over-determined that the slide has accelerated. It is not just that the ECB is buying sovereign bonds. It is not just that the strength of the US labor market has persuaded more participants that the Fed will lose its “patience” (as in forward guidance) next week. It is not just that European officials have yet to convince investors that EMU is irreversible. It is the fact that all three forces are operative.
The controversial issue of “currency manipulation” has resurfaced. However, Washington and Beijing have very different perceptions about the identity of the “currency manipulator.”
America’s two political parties rarely agree, but one thing that unites them is their anger about ‘currency manipulation’, especially by China. Perhaps spurred by the recent appreciation of the dollar and the first signs that it is eroding net exports, congressional Democrats and Republicans are once again considering legislation to counter what they view as unfair currency undervaluation. The proposed measures include countervailing duties against imports from offending countries, even though this would conflict with international trade rules.
An Australian economics professor has predicted that electronic currency such as Bitcoin will replace paper cash within a decade. Others believe this prediction is unrealistic given the slow adoption of the digital currency. But, all sides agree that digital currency will have an influence on the fiat currency systems of the world.
Already driving a housing bubble in all major Asian cities from Seoul to Jakarta, significant hot money inflows are what Hong Kong, China and Singapore seek to avoid. However, Greece’s exit from the Eurozone coupled with subsequent quantitative easing by the People’s Republic of China (PRC) to jump-start flagging growth could quickly exacerbate this Asian dynamic.
