INTRODUCTION
In the foreign exchange market and international finance, a world currency, supranational currency, or global currency refers to a currency in which the vast majority of international transactions take place and which serves as the world's primary reserve currency. In March 2009, as a result of the global economic crisis, China pressed for urgent consideration of a global currency. A UN panel of expert economists has proposed replacing the current US dollar-based system by greatly expanding the International Monetary Fund's Special Drawing Rights (SDRs). Currencies have many forms depending on several properties: type of issuance, type of issuer and type of backing. The particular configuration of those properties leads to different types of money. The pros and cons of a currency are strongly influenced by the type proposed. Consider, for example, the properties of a complementary currency.
NEW GLOBAL CURRENCY
The same central banks that have stolen over 50 Trillion dollars from national treasuries across the planet are now creating a NEW derivatives fraud through the "Cap and Trade" carbon tax system that dwarfs their previous Ponzi schemes. A select group of world banks are lobbying for the same legislation to be passed worldwide. Once the so-called green economy laws are in place, only the global mega corporations - and their subsidiaries - will be allowed to do business. Van Jones, President Obama's choice for "Green Jobs Czar" publicly stated more than once on the record that the new "Green Economy" is only a cover for a revolution against capitalism and the total redistribution of wealth. What Van Jones does NOT tell his followers is that the modern "Green Jobs" movement was designed from its creation to destroy the middle class and to transfer wealth into the hands of the super elite. It's NOT designed to uplift the poor. If their plan is successful, every nation on earth will pay money tribute to the New Global Governance ... AND ... every facet of life will be regulated by the Global Planners. Under the Carbon Tax scheme, China, India, Mexico and over 150 nations are "exempt" from the carbon tax. The global bankers already own the Third World. Their target is the US, Europe and the West. However, China and India will become a "thorn" in the sides of the World Bankers at some point in the future ... and the "Kings of the East" will band together to destroy and/or take over the World Bank conglomerate. The only feasible option at that time for the World Bank will be to allow major control into the hands of the "Kings of the East." At this vertex of decision, the NIO (New Islamic Order) will then fight against the "Kings of the East" to neutralize their economic power. Then ... the leader of the New World Governance will come on the scene. Working through - and receiving his earthly authority from - the auspices of the New world Governance in
Turkey, the New World Governance leader (the false messiah) will formulate a NEW one world currency which will be accepted by the Islamists, by the Kings of the East, by the West, and by the other nations of the globe. This will be concurrent with a "Peace Plan" whereby Israel will be allowed to rebuild her Temple Mount in concession for a divided Jerusalem. All the above is predicated upon a New Global Currency. Behind the scenes ... what seemingly was caused by global economic breakdown ... the need for a New Global currency took place. There is NO room in this Global Governance system for the following: Individuality, Sovereignty, or Independence. There are three (3) areas from which the thrust for a New Global Currency originates: 1. Those who feel jeopardized by the demise of the US dollar. 2. Those who want to see the downfall (economically, militarily, and religiously) of the USA. 3. Those who want to capture mass market of the US and consumers. The Global Bankers - the financial power brokers - want to control not only finances, but also the natural resources of the world. There are two (2) direct ways to do this: government currency AND government regulation.
IS WORLD READY FOR A GLOBAL CURRENCY?
ASHIMA GOYAL, PROFESSOR,
IGIDR*, Mumbai It will emerge through a slow process The world is not yet ready for an international reserve currency, but is ready to begin the process of shifting to such a currency. Otherwise, it would remain too vulnerable to the hegemonic nation. Post-World War II, periods of large US macroeconomic balances have frequently caused problems for other countries. The latter's willingness to hold dollars encourages the US to live beyond its means by just printing dollars, ending in unsustainable situations where the world has to rescue the US. An international reserve currency, the SDR (Special Drawing Rights), was started in late sixties, but it did not really take off, as the Bretton Woods agreement gave way to floating exchange rates, which require less reserves. Moreover, since the gains from being a reserve currency outweigh the responsibilities, the US and international institutions dominated by it did not push the SDR. US economic dominance also meant that its currency was regarded as the safest.
Even today, despite all the problems in the US, the dollar is strengthening as investors deleverage and flee to the safety of the large US tax bases and pro-active macroeconomic policy. The euro, once regarded as a strong contender of the dollar, has lost out since Europe is unable to get its policy act together. Emerging markets are growing rapidly but are still small in size compared to the US. But a countervailing economic power is developing and fora such as the G-20, that share political power across a more diverse set of nations, make serious reform of global governance structures possible. World payments mechanisms and market structures favouring the dollar also have to be changed. These are preconditions to work towards a viable international reserve currency. It will and should be a slow process, fructifying after the current crisis is over. Dialogue with high reserve countries can ensure there is no destabilising sudden collapse of the dollar compounding the global depression. These countries are vulnerable to steep dollar depreciation and will be forced to support it. But a path of reform forcing all nations, including the US, to follow sustainable policies will make the international financial system more robust.
“A GLOBAL ECONOMY NEEDS A GLOBAL CURRENCY.”
A hypothetical Single Global Currency (SGC) or Super currency refers to a currency produced and supported by a central bank which would be used for all transactions around the world, regardless of the nationality of the entities (individuals, corporations, governments, or other organizations) involved in the transaction. No such official currency currently exists. The idea of a single currency for the world is not new. The SGC was first proposed by the Italian, Scaruffi, in the 1500?s. Since that time the formation of nation states led to national monopolies of currency production and distribution. continued to grow. A Single Global Currency may seem like a distant goal, in the light of PIIGS and given that more than 190 countries and 140 currencies in the world, but the logic behind it is a solution to some of the critical problems threatening our present economic wellbeing cannot be denied. The current system of floating and pegged exchange rates has caused numerous currency failures with the consequent losses of hundreds of billions of dollars. Floating rates have not reduced international trade or investment or caused a disintegration of international capital market but have failed to lead to quick adjustment in trade flows. It supports a competitive system of global trade that necessitates the generation of deficits in some countries to offset the surpluses in others. The current nation-centric financial system is partial and flawed, because it concentrates power at the national level and leaves even the strongest currencies subject to external impacts beyond the control or power of national central banks to regulate. In the past, the monetary crises in Mexico, Brazil, Russia and Southeast Asia – to name but a few of the countries and regions whose economies have been especially hard hit – have demonstrated With the liberation of most of the world’s territory from colonialism, the number of currencies
the fragility of the international financial system. The recent global financial turmoil (2008) brought the world to the brink of monetary collapse, and reminded us yet again that the current multicurrency system has excessive risks and costs. While some countries and regions have been relatively insulated so far from the very real economic hardship and dislocation caused by these crises, specialists in international finance have warned repeatedly of a possible domino effect, through which a deepening economic collapse in one region could spread elsewhere, if not worldwide. Such warnings stem from the fact, now well established, that the world’s economy is today entirely integrated. While this integration offers a degree of redundancy and resiliency, it also calls for a much greater attention to the whole system – and mandates greater cooperation to ensure the economy’s proper functioning. Michael Hutchison and Ian Neuberger estimated that currency crises in twenty-four emerging market economies during the years 1975-1997 were responsible for a 5-8 percent reduction in GDP output over a typical two-to-three year period, before returning to a normal growth rate. Also with increasing globalization, the current national and international structure of financial institutions established to manage banking and investment activities is grossly inadequate to meet the challenges of a single global market, where foreign exchange transactions worth more than $ 5.3 trillion take place every day. Only a comprehensive and inclusive system that embraces the whole can be immune from threats and instability. The only long term alternative is to deliberately move to a single global currency, managed by a global central bank within a global monetary union. It would entail tremendous benefits such as firstly it would save transaction costs worth 1 trillion $ a year. Fewer costs to transfer wealth across nations would in turn reduce disparity.
Secondly it could stop accumulation of exchange reserves estimated at 30% of GDP for developing countries (2004) which can be diverted to productive investment. Thirdly it would eliminate cost of maintaining high levels of forex (interest charges incurred by developing countries in holding these reserves worth 4.5 trillion $ amount to 100 billion $ a year). Fourthly, not only would it lead to elimination of foreign currency and BOP problems of all countries but also bring an end to currency instability by fixing exchange rates .This would further reduce uncertainty in markets leading to a greater growth potential, bring an end to hedging and administrative costs for businesses and also reduce frequency and severity of financial crises. Fifthly freer trade due to reduced transaction costs and currency fluctuations would lower interest rates leading to greater investments which would raise asset values by $36 trillion globally Sixthly it would eliminate misalignment of currencies and enable greater social integration by ensuring stable currency as a fundamental right and utilize seigniorage benefit for shared world goals. The potential drawbacks include loss of independent monetary policy as countries would be unable to change value of currency, use interest rate to stabilize the economy or use inflation to reduce real burden of public debt Secondly convergence poses a major problem as countries are at different stages of their cycle. One central bank cannot set inflation at the appropriate level for each member state. Thirdly its often contended that it may be desirable only for small open economies, those with history of hyperinflation or where independent monetary policy is no longer usable or those with scarce investor confidence
Fourthly management poses a formidable challenge as finding a good governance system for the world to regulate SGC, could prove more difficult. It would require a single world body to print money leading to a global monopoly moreover printing of the currency on a large scale could cause purchasing power to decline rapidly also it raises question of equitable representation for all countries. Fifthly there’s institutional deadlock opposition from credit institutions in favor of instability as the latter is a source of profits for arbitrage and hedging markets. Credit institutions will lose income from currency exchange process as FOREX markets would disappear. It would also entail significant costs in terms of educating customers, changing labels, training staff, changing computer software etc. Sixthly political challenges in terms of loss of national sovereignty, imploring strong countries to cooperate with weaker countries along with splitting of seigniorage revenues serve as a potential barrier. Lastly theoretical debate relating to whether world forms an optimal currency area persists for e.g. barriers to labor mobility can cause disparities in employment situations. The possible routes to Single global currency include formation of monetary unions ,monetary linking of major currencies ,political union or adoption of another currency (Euroization ,Dollarization , Internationalization of Renminbi,Yen) ; synthetic basket of currencies (SDR),Terra or Bullion (Gold) back to mercantile era. The PIIGS crisis being witnessed today evokes serious doubts over efficacy of SGC.
Eventually it is the success of Euro (experimentation of SGC on a small sample ) that will determine whether SGC will emerge as reality or remain an elusive mirage!
BENEFITS OF GLOBAL CURRENCY
Right now we heard the word, "Euro", "Yen" and "Dollar" referring to currency exchange. A global currency would end that, and in exchange we would all be on the same page. People around the world would know the exact condition of their economy versus that of other countries. Those who are experiencing recession, inflation, or prosperity would have a very quick indicator. With no quess work involved, we could all see how goods are flowing, how markets are doing, and the common people, with little knowledge of economics could easily compare costs when making a purchase. This might encourage people all over the world to visit countries where commodities and goods can be purchased at rock bottom prices. A global currency means no more hidden agendas. When you travel from country to country, there is this constant unwillingness to spend money until you know its value abroad. Sometimes this is never 00wide open, and tourists, especially, have to barter and bargain their way through just about every transaction. With a global currency, this would be a thing of the past. Tourists would be able to trade in their reluctance with acceptance. It would be such a relief also for people who are planning to go abroad as missionaries or relief workers. In the United States, our currency is back by a gold standard. This has been our acceptable equivalency. Inflation, however, and other fluctuations in the market, make it very difficult for common people to understand what is going on with the gold standard. Right now we cannot take a dollar bill to the bank and ask for the gold exchange on demand. It just will not happen. Therefore, with a new global currency, all countries will have to agree upon some type of standard. This, perhaps, is where there will be some difficulty. If gold is used as the standard, all could readily agree, however, if gold is taken out of the equation, and some other substitutes are employed, the quantities, and measurements might vary from country to country. A question would arise as to who would be in control of monitoring global exchanges? Where money is involved, there are always power thirsty people. This might be one threat to a global currency, but not necessisarily a deterrant.
With a global currency, money could be traced more readily. Even laundered money could be found quickly, and exchanges in other countries would be more wide open to scrutiny. Presently it takes some real knowledge of currency exchanges to trace money from bank to bank. For the banks, I do not feel global currency will provide any protection for them, but for we, the common folk, why not try it?
FACTORS INFLUENCING THE INDIAN CURRENCY MARKET
India follows the Liberalised Exchange Rate Management System (LERMS), under which it is absolutely necessary for corporate executives to understand how the exchange rate moves, and why. Considering the large volume of transactions, a movement of even 2–3 paise in the exchange rate can hit the bottomline of any corporate. As such, there are several factors that influence the currency market. Some of the important ones, which have influenced the market recently.
Every major development in Indian or world economy affects the Indian currency market. Long gone are the days of the fixed exchange rate regime, when corporate executives used to be ill-informed about international news, movement of oil prices or other factors influencing the currency market. Today, India follows the Liberalised Exchange Rate Management System (LERMS), under which it is absolutely essential for corporate executives to understand how the exchange rate moves, and why. Considering the large volume of transactions, a movement of even 2-3 paise in the exchange rate can hit the bottomline of any corporate. There are a number of instances when a sudden movement in the exchange rate has made companies lose or gain heavily in foreign currency transactions. There are several factors that influence the currency market. Some of the important ones among them, which have impacted the market recently, are discussed below:
CHANGE OF INTEREST RATE
The value of the currency of any country depends on the interest rate of that country. In case of upward movement of interest rate in the United States, the US Dollar (USD) appreciates against other currencies as well as against the Indian Rupee (INR). Any change of interest rate by the Federal Reserve Bank of New York (FED) through the Federal Open Market Committee (FOMC) has a great impact on the currency market. In the recent past there have been instances of rate hikes by the FED, as a result of which the USD had appreciated against major international currencies as well as the Indian Rupee. Even an expectation of change of interest rate has a great impact on currency market. Whenever there is any such expectation, the market reacts sharply. The possibility of changes in interest rate is a speculative move, and the market reacts only for a short period of time.
The market generally discounts some portion of such expectations well in advance, before they actually happen. Change of interest rate by the European Commercial Bank (ECB) is now equally important. The value of the Euro is influenced by a change of interest rate by ECB. Recently, there have been several occasions when the Euro strengthened against the USD following a hike in interest rate, or even the expectation of a hike in interest rate by the ECB.
INFLOW OF FOREIGN FUNDS
The exchange rate depends on demand and supply of currency. Strong economic fundamentals and good ratings by international rating agencies have boosted foreign investors’ confidence in the Indian market. Huge foreign investments have already come to India, while big investments through Foreign Institutional Investors (FIIs) and Foreign Direct Investment (FDI) are expected in the near future. In the last couple of months, substantial foreign funds have been infused into the Indian market. Since most of these have been in the form of USD, the supply of USD against the Indian Rupee became high, and it depreciated against the Rupee. On the other hand, at the time when FIIs wanted to withdraw funds from the market, the demand for USD in the Indian market became high, and it appreciated against the Rupee. During the last one to one-and-a-half years, the Indian rupee has shown a tendency to appreciate due to a huge inflow of foreign funds in the Indian market by FIIs or through FDIs in the form of External Commercial Borrowings (ECB) and Foreign Currency Convertible Bonds (FCCBs). A direct relationship may be drawn between the USD–INR exchange rate and the BSE index. Considering all other factors to be constant, whenever overseas FIIs buy shares from the Indian market, there is an upward movement of the BSE index. At the same time, due to inflow of foreign funds (foreign investors have USD to sell—they will buy INR to invest in Indian market against USD) in the Indian market, the supply of USD increases in the market and it depreciates against INR, or INR appreciates against USD. On the other hand, if there is any negative flow of funds by FIIs, there would be a downward movement of the BSE index, and consequently USD would appreciate against INR.
PRICE OF OIL
A large portion of India’s import payment is mainly for payment of oil. Internationally, crude prices are named as BRENT, NYMEX, and Dubai Crude. Whenever there is any hike in the oil price per barrel, the Indian Rupee depreciates against the US Dollar. As such, the Indian Government buys more USD against INR to honour the import liability, resulting in heavy demand for USD. Consequently, the Indian rupee depreciates against USD. The Indian currency market largely depends on the price of Dubai Crude. It is observed that USD appreciates at the end of the month when compared to other days of the month, primarily because of the month-end demand of USD in the wake of payment for imported oil. However, today’s market is mature enough, with players of foreign exchange covering themselves against this type of expected fluctuations in the market. Whenever FIIs book profits by selling their shares, the BSE index falls, and at the same time INR depreciates against the USD. On April 12, 2006, the BSE index fell by more than 300 points due to heavy selling by FIIs, and on the same day the crude price also shot up to around USD70 per barrel. The Indian Rupee depreciated by 45-50 paise on the same day, owing to the impact of these two important factors.
COMMENTS FROM POLITICAL LEADERS
Comments from political leaders and top bureaucrats do influence the market, but this is very short-term. It is quite common in India, particularly when it comes to comments from political leaders or the Governor of the Reserve Bank of India (RBI). We know that the Japanese economy is export-oriented, and that Japanese exporters welcome any move that depreciates the Japanese Yen. It has been observed that whenever the Yen strengthens against the USD, Japanese politicians tend to pass comments on economy that allows the Yen to slip back to its original level. Political unrests can also strongly influence the currency market, but again only for a short period of time. Extended periods of political uncertainty can, however, cause the rest of the world to lose confidence in that country, and could finally result in a steep fall in the value
of that country’s currency.
PRICE OF OIL
A large portion of India’s import payment is mainly for payment of oil. Internationally, crude prices are named as BRENT, NYMEX, and Dubai Crude. Whenever there is any hike in the oil price per barrel, the Indian Rupee depreciates against the US Dollar. As such, the Indian Government buys more USD against INR to honour the import liability, resulting in heavy demand for USD. Consequently, the Indian rupee depreciates against USD. The Indian currency market largely depends on the price of Dubai Crude. It is observed that USD appreciates at the end of the month when compared to other days of the month, primarily because of the month-end demand of USD in the wake of payment for imported oil. However, today’s market is mature enough, with players of foreign exchange covering themselves against this type of expected fluctuations in the market. Whenever FIIs book profits by selling their shares, the BSE index falls, and at the same time INR depreciates against the USD. On April 12, 2006, the BSE index fell by more than 300 points due to heavy selling by FIIs, and on the same day the crude price also shot up to around USD70 per barrel. The Indian Rupee depreciated by 45-50 paise on the same day, owing to the impact of these two important factors.
COMMENTS FROM POLITICAL LEADERS
Comments from political leaders and top bureaucrats do influence the market, but this is very short-term. It is quite common in India, particularly when it comes to comments from political leaders or the Governor of the Reserve Bank of India (RBI). We know that the Japanese economy is export-oriented, and that Japanese exporters welcome any move that
depreciates the Japanese Yen. It has been observed that whenever the Yen strengthens against the USD, Japanese politicians tend to pass comments on economy that allows the Yen to slip back to its original level. Political unrests can also strongly influence the currency market, but again only for a short period of time. Extended periods of political uncertainty can, however, cause the rest of the world to lose confidence in that country, and could finally result in a steep fall in the value of that country’s currency.
RELEASE OF ECONOMIC DATA
The economic data or surveys released by various national and international agencies, including FED, RBI, Moody’s, etc. can influence market sentiments and lead to movement in exchange rates. Some data from the US, such as Non-Form Payroll, Jobless Claim, US trade deficit and GDP growth rate are known to influence the currency market. In the last week of May 2006, the Non-Form Payroll data (monthly data generally released on the first Friday of the month) was released by the US Department of Labor, and it was weaker than market expectations. As a result, the Euro became stronger against the USD, from 1.2739 to 1.2953 between 26 May and 5 June 2006. Annual economic review, RBI credit policy, monetary policy, etc. also strongly influence the currency market. Understanding, interpretation and correlation of different data are important to gain a thorough understanding of the exchange rate movement by any corporate. Any mistake in the interpretation of data released could cause heavy loss to an organisation.
RBI INTERVENTION
The RBI, which regulates the Indian currency market, does intervene whenever it feels itis required to stabilize the market, or to keep market volatility under control. It is the responsibility of the RBI to keep the exchange rate unaffected at a time of volatility in the foreign currency market. It has been observed that RBI intervenes in the currency market whenever there is any abnormal movement in the exchange rate, either upward or downward.
The RBI buys foreign currency (USD) to depreciate the domestic currency, and sells foreign
currency
when the domestic currency depreciates abnormally. Sometimes the RBI does not intervene at all. In April and May 2006, the Indian Rupee depreciated heavily in the wake of the fall of the BSE Index, but the RBI did not intervene, much as previously the Indian Rupee had appreciated (in January and February 2006) to such a level that it needed to be depreciated solely by market forces.
NATURAL CALAMITIES
Natural calamities may also affect the currency market for a short period of time. In August 2005, Hurricane Katrina affected the entire region around the Gulf of Mexico. This region contributes around one-third of US oil production and accounts for around half of the nation’s refining capacity. Besides, a large part of US oil imports reaches ports in this area. The hurricane caused a huge loss in production of crude oil and natural gas. It affected the prices of crude oil and prices shot up to around USD70 per barrel in a very short time. Automatically, the oil price increased globally and at the same time affected the exchange rate. Since India had to buy more USD to honour its import liability, the Rupee became weaker by around 60-65 paise against the USD.
CONCLUSION
We are living in a global economy. As such, the Indian economy is no longer immune to international news and events, and reacts accordingly. Some countries are now considering converting some portion of their reserve into Euro from USD, and recently a number of
international transactions have started moving from USD to Euro. These changing circumstances may influence the Euro-USD exchange rate. Also, many corporates are now entering into derivative contracts to protect future cash outflow. Further, some corporates also consider options such as double-no-touch barrier, particularly when entering into contract-like structure deposits on foreign currency denominated fund. While entering into such transactions, a corporate has to look into all factors that may influence the exchange rate of the currency pair (such as USDINR, Euro-USD and USD-JPY, and also perhaps USD-CHF and GBP-USD). Nowadays many corporates take Term Liability and enter into transactions by which they can reduce the Rupee interest burden by swiping the same liability into Japanese Yen (JPY), as interest rate on JPY is lower than that on the Indian Rupee. But in this type of transaction, the corporate is exposed to the currency risk of both USD-INR and USD-JPY. In India, direct quotation for USD-INR is available, but direct exchange rate between other foreign currencies (other than USD) and the Indian Rupee is not available. So, if any corporate has to buy JPY to honour its financial liability on the maturity date, it has to undertake two transactions. First of all it will have to buy USD from Indian market against Indian Rupee. Then it will have to buy JPY from the international market against the said USD. At the same time, the corporate has to bear the cost of two transactions in the form of margin, etc. So, in this type of transaction the corporate has to be well-informed about factors that may influence not only USD-INR but also USD-JPY. Some corporates may even undertake such transactions through the Swiss Franc (CHF), if they feel this is less volatile than JPY.
Since different currencies react for different reasons and economic fundamentals, it has been noticed many times that the Indian Rupee may depreciate against the USD, while at the same time other major currencies appreciate against the USD or remain unchanged. Corporates have to pay attention to all factors that may influence the currency market, and only then they can take a correct stance. It has been noticed that despite interest rate hike by FED, the USD depreciates gradually in comparison to other major currencies, primarily due to the release of negative data about current account deficit in the US. It has also been observed that an increase in the Repo rate by RBI results in the Indian Rupee getting marginally stronger against the USD (as on 9 June 2006), but at the same time due to positive data released on the US trade deficit, the USD was still strong against other major currencies, including the Euro.
REFERENCES
WEB-SITES : ?http://www.uofe.org/new_global_currency.html ?http://articles.economictimes.india...654438_1_reserve-currency-global-currency-sdr ?http://fy.iimklive.com/?p=364 ?http://www.helium.com/items/1151886-global-currency-thoughts ?http://220.227.161.86/9900769-772.pdf
doc_902197630.doc
In the foreign exchange market and international finance, a world currency, supranational currency, or global currency refers to a currency in which the vast majority of international transactions take place and which serves as the world's primary reserve currency. In March 2009, as a result of the global economic crisis, China pressed for urgent consideration of a global currency. A UN panel of expert economists has proposed replacing the current US dollar-based system by greatly expanding the International Monetary Fund's Special Drawing Rights (SDRs). Currencies have many forms depending on several properties: type of issuance, type of issuer and type of backing. The particular configuration of those properties leads to different types of money. The pros and cons of a currency are strongly influenced by the type proposed. Consider, for example, the properties of a complementary currency.
NEW GLOBAL CURRENCY
The same central banks that have stolen over 50 Trillion dollars from national treasuries across the planet are now creating a NEW derivatives fraud through the "Cap and Trade" carbon tax system that dwarfs their previous Ponzi schemes. A select group of world banks are lobbying for the same legislation to be passed worldwide. Once the so-called green economy laws are in place, only the global mega corporations - and their subsidiaries - will be allowed to do business. Van Jones, President Obama's choice for "Green Jobs Czar" publicly stated more than once on the record that the new "Green Economy" is only a cover for a revolution against capitalism and the total redistribution of wealth. What Van Jones does NOT tell his followers is that the modern "Green Jobs" movement was designed from its creation to destroy the middle class and to transfer wealth into the hands of the super elite. It's NOT designed to uplift the poor. If their plan is successful, every nation on earth will pay money tribute to the New Global Governance ... AND ... every facet of life will be regulated by the Global Planners. Under the Carbon Tax scheme, China, India, Mexico and over 150 nations are "exempt" from the carbon tax. The global bankers already own the Third World. Their target is the US, Europe and the West. However, China and India will become a "thorn" in the sides of the World Bankers at some point in the future ... and the "Kings of the East" will band together to destroy and/or take over the World Bank conglomerate. The only feasible option at that time for the World Bank will be to allow major control into the hands of the "Kings of the East." At this vertex of decision, the NIO (New Islamic Order) will then fight against the "Kings of the East" to neutralize their economic power. Then ... the leader of the New World Governance will come on the scene. Working through - and receiving his earthly authority from - the auspices of the New world Governance in
Turkey, the New World Governance leader (the false messiah) will formulate a NEW one world currency which will be accepted by the Islamists, by the Kings of the East, by the West, and by the other nations of the globe. This will be concurrent with a "Peace Plan" whereby Israel will be allowed to rebuild her Temple Mount in concession for a divided Jerusalem. All the above is predicated upon a New Global Currency. Behind the scenes ... what seemingly was caused by global economic breakdown ... the need for a New Global currency took place. There is NO room in this Global Governance system for the following: Individuality, Sovereignty, or Independence. There are three (3) areas from which the thrust for a New Global Currency originates: 1. Those who feel jeopardized by the demise of the US dollar. 2. Those who want to see the downfall (economically, militarily, and religiously) of the USA. 3. Those who want to capture mass market of the US and consumers. The Global Bankers - the financial power brokers - want to control not only finances, but also the natural resources of the world. There are two (2) direct ways to do this: government currency AND government regulation.
IS WORLD READY FOR A GLOBAL CURRENCY?
ASHIMA GOYAL, PROFESSOR,
IGIDR*, Mumbai It will emerge through a slow process The world is not yet ready for an international reserve currency, but is ready to begin the process of shifting to such a currency. Otherwise, it would remain too vulnerable to the hegemonic nation. Post-World War II, periods of large US macroeconomic balances have frequently caused problems for other countries. The latter's willingness to hold dollars encourages the US to live beyond its means by just printing dollars, ending in unsustainable situations where the world has to rescue the US. An international reserve currency, the SDR (Special Drawing Rights), was started in late sixties, but it did not really take off, as the Bretton Woods agreement gave way to floating exchange rates, which require less reserves. Moreover, since the gains from being a reserve currency outweigh the responsibilities, the US and international institutions dominated by it did not push the SDR. US economic dominance also meant that its currency was regarded as the safest.
Even today, despite all the problems in the US, the dollar is strengthening as investors deleverage and flee to the safety of the large US tax bases and pro-active macroeconomic policy. The euro, once regarded as a strong contender of the dollar, has lost out since Europe is unable to get its policy act together. Emerging markets are growing rapidly but are still small in size compared to the US. But a countervailing economic power is developing and fora such as the G-20, that share political power across a more diverse set of nations, make serious reform of global governance structures possible. World payments mechanisms and market structures favouring the dollar also have to be changed. These are preconditions to work towards a viable international reserve currency. It will and should be a slow process, fructifying after the current crisis is over. Dialogue with high reserve countries can ensure there is no destabilising sudden collapse of the dollar compounding the global depression. These countries are vulnerable to steep dollar depreciation and will be forced to support it. But a path of reform forcing all nations, including the US, to follow sustainable policies will make the international financial system more robust.
“A GLOBAL ECONOMY NEEDS A GLOBAL CURRENCY.”
A hypothetical Single Global Currency (SGC) or Super currency refers to a currency produced and supported by a central bank which would be used for all transactions around the world, regardless of the nationality of the entities (individuals, corporations, governments, or other organizations) involved in the transaction. No such official currency currently exists. The idea of a single currency for the world is not new. The SGC was first proposed by the Italian, Scaruffi, in the 1500?s. Since that time the formation of nation states led to national monopolies of currency production and distribution. continued to grow. A Single Global Currency may seem like a distant goal, in the light of PIIGS and given that more than 190 countries and 140 currencies in the world, but the logic behind it is a solution to some of the critical problems threatening our present economic wellbeing cannot be denied. The current system of floating and pegged exchange rates has caused numerous currency failures with the consequent losses of hundreds of billions of dollars. Floating rates have not reduced international trade or investment or caused a disintegration of international capital market but have failed to lead to quick adjustment in trade flows. It supports a competitive system of global trade that necessitates the generation of deficits in some countries to offset the surpluses in others. The current nation-centric financial system is partial and flawed, because it concentrates power at the national level and leaves even the strongest currencies subject to external impacts beyond the control or power of national central banks to regulate. In the past, the monetary crises in Mexico, Brazil, Russia and Southeast Asia – to name but a few of the countries and regions whose economies have been especially hard hit – have demonstrated With the liberation of most of the world’s territory from colonialism, the number of currencies
the fragility of the international financial system. The recent global financial turmoil (2008) brought the world to the brink of monetary collapse, and reminded us yet again that the current multicurrency system has excessive risks and costs. While some countries and regions have been relatively insulated so far from the very real economic hardship and dislocation caused by these crises, specialists in international finance have warned repeatedly of a possible domino effect, through which a deepening economic collapse in one region could spread elsewhere, if not worldwide. Such warnings stem from the fact, now well established, that the world’s economy is today entirely integrated. While this integration offers a degree of redundancy and resiliency, it also calls for a much greater attention to the whole system – and mandates greater cooperation to ensure the economy’s proper functioning. Michael Hutchison and Ian Neuberger estimated that currency crises in twenty-four emerging market economies during the years 1975-1997 were responsible for a 5-8 percent reduction in GDP output over a typical two-to-three year period, before returning to a normal growth rate. Also with increasing globalization, the current national and international structure of financial institutions established to manage banking and investment activities is grossly inadequate to meet the challenges of a single global market, where foreign exchange transactions worth more than $ 5.3 trillion take place every day. Only a comprehensive and inclusive system that embraces the whole can be immune from threats and instability. The only long term alternative is to deliberately move to a single global currency, managed by a global central bank within a global monetary union. It would entail tremendous benefits such as firstly it would save transaction costs worth 1 trillion $ a year. Fewer costs to transfer wealth across nations would in turn reduce disparity.
Secondly it could stop accumulation of exchange reserves estimated at 30% of GDP for developing countries (2004) which can be diverted to productive investment. Thirdly it would eliminate cost of maintaining high levels of forex (interest charges incurred by developing countries in holding these reserves worth 4.5 trillion $ amount to 100 billion $ a year). Fourthly, not only would it lead to elimination of foreign currency and BOP problems of all countries but also bring an end to currency instability by fixing exchange rates .This would further reduce uncertainty in markets leading to a greater growth potential, bring an end to hedging and administrative costs for businesses and also reduce frequency and severity of financial crises. Fifthly freer trade due to reduced transaction costs and currency fluctuations would lower interest rates leading to greater investments which would raise asset values by $36 trillion globally Sixthly it would eliminate misalignment of currencies and enable greater social integration by ensuring stable currency as a fundamental right and utilize seigniorage benefit for shared world goals. The potential drawbacks include loss of independent monetary policy as countries would be unable to change value of currency, use interest rate to stabilize the economy or use inflation to reduce real burden of public debt Secondly convergence poses a major problem as countries are at different stages of their cycle. One central bank cannot set inflation at the appropriate level for each member state. Thirdly its often contended that it may be desirable only for small open economies, those with history of hyperinflation or where independent monetary policy is no longer usable or those with scarce investor confidence
Fourthly management poses a formidable challenge as finding a good governance system for the world to regulate SGC, could prove more difficult. It would require a single world body to print money leading to a global monopoly moreover printing of the currency on a large scale could cause purchasing power to decline rapidly also it raises question of equitable representation for all countries. Fifthly there’s institutional deadlock opposition from credit institutions in favor of instability as the latter is a source of profits for arbitrage and hedging markets. Credit institutions will lose income from currency exchange process as FOREX markets would disappear. It would also entail significant costs in terms of educating customers, changing labels, training staff, changing computer software etc. Sixthly political challenges in terms of loss of national sovereignty, imploring strong countries to cooperate with weaker countries along with splitting of seigniorage revenues serve as a potential barrier. Lastly theoretical debate relating to whether world forms an optimal currency area persists for e.g. barriers to labor mobility can cause disparities in employment situations. The possible routes to Single global currency include formation of monetary unions ,monetary linking of major currencies ,political union or adoption of another currency (Euroization ,Dollarization , Internationalization of Renminbi,Yen) ; synthetic basket of currencies (SDR),Terra or Bullion (Gold) back to mercantile era. The PIIGS crisis being witnessed today evokes serious doubts over efficacy of SGC.
Eventually it is the success of Euro (experimentation of SGC on a small sample ) that will determine whether SGC will emerge as reality or remain an elusive mirage!
BENEFITS OF GLOBAL CURRENCY
Right now we heard the word, "Euro", "Yen" and "Dollar" referring to currency exchange. A global currency would end that, and in exchange we would all be on the same page. People around the world would know the exact condition of their economy versus that of other countries. Those who are experiencing recession, inflation, or prosperity would have a very quick indicator. With no quess work involved, we could all see how goods are flowing, how markets are doing, and the common people, with little knowledge of economics could easily compare costs when making a purchase. This might encourage people all over the world to visit countries where commodities and goods can be purchased at rock bottom prices. A global currency means no more hidden agendas. When you travel from country to country, there is this constant unwillingness to spend money until you know its value abroad. Sometimes this is never 00wide open, and tourists, especially, have to barter and bargain their way through just about every transaction. With a global currency, this would be a thing of the past. Tourists would be able to trade in their reluctance with acceptance. It would be such a relief also for people who are planning to go abroad as missionaries or relief workers. In the United States, our currency is back by a gold standard. This has been our acceptable equivalency. Inflation, however, and other fluctuations in the market, make it very difficult for common people to understand what is going on with the gold standard. Right now we cannot take a dollar bill to the bank and ask for the gold exchange on demand. It just will not happen. Therefore, with a new global currency, all countries will have to agree upon some type of standard. This, perhaps, is where there will be some difficulty. If gold is used as the standard, all could readily agree, however, if gold is taken out of the equation, and some other substitutes are employed, the quantities, and measurements might vary from country to country. A question would arise as to who would be in control of monitoring global exchanges? Where money is involved, there are always power thirsty people. This might be one threat to a global currency, but not necessisarily a deterrant.
With a global currency, money could be traced more readily. Even laundered money could be found quickly, and exchanges in other countries would be more wide open to scrutiny. Presently it takes some real knowledge of currency exchanges to trace money from bank to bank. For the banks, I do not feel global currency will provide any protection for them, but for we, the common folk, why not try it?
FACTORS INFLUENCING THE INDIAN CURRENCY MARKET
India follows the Liberalised Exchange Rate Management System (LERMS), under which it is absolutely necessary for corporate executives to understand how the exchange rate moves, and why. Considering the large volume of transactions, a movement of even 2–3 paise in the exchange rate can hit the bottomline of any corporate. As such, there are several factors that influence the currency market. Some of the important ones, which have influenced the market recently.
Every major development in Indian or world economy affects the Indian currency market. Long gone are the days of the fixed exchange rate regime, when corporate executives used to be ill-informed about international news, movement of oil prices or other factors influencing the currency market. Today, India follows the Liberalised Exchange Rate Management System (LERMS), under which it is absolutely essential for corporate executives to understand how the exchange rate moves, and why. Considering the large volume of transactions, a movement of even 2-3 paise in the exchange rate can hit the bottomline of any corporate. There are a number of instances when a sudden movement in the exchange rate has made companies lose or gain heavily in foreign currency transactions. There are several factors that influence the currency market. Some of the important ones among them, which have impacted the market recently, are discussed below:
CHANGE OF INTEREST RATE
The value of the currency of any country depends on the interest rate of that country. In case of upward movement of interest rate in the United States, the US Dollar (USD) appreciates against other currencies as well as against the Indian Rupee (INR). Any change of interest rate by the Federal Reserve Bank of New York (FED) through the Federal Open Market Committee (FOMC) has a great impact on the currency market. In the recent past there have been instances of rate hikes by the FED, as a result of which the USD had appreciated against major international currencies as well as the Indian Rupee. Even an expectation of change of interest rate has a great impact on currency market. Whenever there is any such expectation, the market reacts sharply. The possibility of changes in interest rate is a speculative move, and the market reacts only for a short period of time.
The market generally discounts some portion of such expectations well in advance, before they actually happen. Change of interest rate by the European Commercial Bank (ECB) is now equally important. The value of the Euro is influenced by a change of interest rate by ECB. Recently, there have been several occasions when the Euro strengthened against the USD following a hike in interest rate, or even the expectation of a hike in interest rate by the ECB.
INFLOW OF FOREIGN FUNDS
The exchange rate depends on demand and supply of currency. Strong economic fundamentals and good ratings by international rating agencies have boosted foreign investors’ confidence in the Indian market. Huge foreign investments have already come to India, while big investments through Foreign Institutional Investors (FIIs) and Foreign Direct Investment (FDI) are expected in the near future. In the last couple of months, substantial foreign funds have been infused into the Indian market. Since most of these have been in the form of USD, the supply of USD against the Indian Rupee became high, and it depreciated against the Rupee. On the other hand, at the time when FIIs wanted to withdraw funds from the market, the demand for USD in the Indian market became high, and it appreciated against the Rupee. During the last one to one-and-a-half years, the Indian rupee has shown a tendency to appreciate due to a huge inflow of foreign funds in the Indian market by FIIs or through FDIs in the form of External Commercial Borrowings (ECB) and Foreign Currency Convertible Bonds (FCCBs). A direct relationship may be drawn between the USD–INR exchange rate and the BSE index. Considering all other factors to be constant, whenever overseas FIIs buy shares from the Indian market, there is an upward movement of the BSE index. At the same time, due to inflow of foreign funds (foreign investors have USD to sell—they will buy INR to invest in Indian market against USD) in the Indian market, the supply of USD increases in the market and it depreciates against INR, or INR appreciates against USD. On the other hand, if there is any negative flow of funds by FIIs, there would be a downward movement of the BSE index, and consequently USD would appreciate against INR.
PRICE OF OIL
A large portion of India’s import payment is mainly for payment of oil. Internationally, crude prices are named as BRENT, NYMEX, and Dubai Crude. Whenever there is any hike in the oil price per barrel, the Indian Rupee depreciates against the US Dollar. As such, the Indian Government buys more USD against INR to honour the import liability, resulting in heavy demand for USD. Consequently, the Indian rupee depreciates against USD. The Indian currency market largely depends on the price of Dubai Crude. It is observed that USD appreciates at the end of the month when compared to other days of the month, primarily because of the month-end demand of USD in the wake of payment for imported oil. However, today’s market is mature enough, with players of foreign exchange covering themselves against this type of expected fluctuations in the market. Whenever FIIs book profits by selling their shares, the BSE index falls, and at the same time INR depreciates against the USD. On April 12, 2006, the BSE index fell by more than 300 points due to heavy selling by FIIs, and on the same day the crude price also shot up to around USD70 per barrel. The Indian Rupee depreciated by 45-50 paise on the same day, owing to the impact of these two important factors.
COMMENTS FROM POLITICAL LEADERS
Comments from political leaders and top bureaucrats do influence the market, but this is very short-term. It is quite common in India, particularly when it comes to comments from political leaders or the Governor of the Reserve Bank of India (RBI). We know that the Japanese economy is export-oriented, and that Japanese exporters welcome any move that depreciates the Japanese Yen. It has been observed that whenever the Yen strengthens against the USD, Japanese politicians tend to pass comments on economy that allows the Yen to slip back to its original level. Political unrests can also strongly influence the currency market, but again only for a short period of time. Extended periods of political uncertainty can, however, cause the rest of the world to lose confidence in that country, and could finally result in a steep fall in the value
of that country’s currency.
PRICE OF OIL
A large portion of India’s import payment is mainly for payment of oil. Internationally, crude prices are named as BRENT, NYMEX, and Dubai Crude. Whenever there is any hike in the oil price per barrel, the Indian Rupee depreciates against the US Dollar. As such, the Indian Government buys more USD against INR to honour the import liability, resulting in heavy demand for USD. Consequently, the Indian rupee depreciates against USD. The Indian currency market largely depends on the price of Dubai Crude. It is observed that USD appreciates at the end of the month when compared to other days of the month, primarily because of the month-end demand of USD in the wake of payment for imported oil. However, today’s market is mature enough, with players of foreign exchange covering themselves against this type of expected fluctuations in the market. Whenever FIIs book profits by selling their shares, the BSE index falls, and at the same time INR depreciates against the USD. On April 12, 2006, the BSE index fell by more than 300 points due to heavy selling by FIIs, and on the same day the crude price also shot up to around USD70 per barrel. The Indian Rupee depreciated by 45-50 paise on the same day, owing to the impact of these two important factors.
COMMENTS FROM POLITICAL LEADERS
Comments from political leaders and top bureaucrats do influence the market, but this is very short-term. It is quite common in India, particularly when it comes to comments from political leaders or the Governor of the Reserve Bank of India (RBI). We know that the Japanese economy is export-oriented, and that Japanese exporters welcome any move that
depreciates the Japanese Yen. It has been observed that whenever the Yen strengthens against the USD, Japanese politicians tend to pass comments on economy that allows the Yen to slip back to its original level. Political unrests can also strongly influence the currency market, but again only for a short period of time. Extended periods of political uncertainty can, however, cause the rest of the world to lose confidence in that country, and could finally result in a steep fall in the value of that country’s currency.
RELEASE OF ECONOMIC DATA
The economic data or surveys released by various national and international agencies, including FED, RBI, Moody’s, etc. can influence market sentiments and lead to movement in exchange rates. Some data from the US, such as Non-Form Payroll, Jobless Claim, US trade deficit and GDP growth rate are known to influence the currency market. In the last week of May 2006, the Non-Form Payroll data (monthly data generally released on the first Friday of the month) was released by the US Department of Labor, and it was weaker than market expectations. As a result, the Euro became stronger against the USD, from 1.2739 to 1.2953 between 26 May and 5 June 2006. Annual economic review, RBI credit policy, monetary policy, etc. also strongly influence the currency market. Understanding, interpretation and correlation of different data are important to gain a thorough understanding of the exchange rate movement by any corporate. Any mistake in the interpretation of data released could cause heavy loss to an organisation.
RBI INTERVENTION
The RBI, which regulates the Indian currency market, does intervene whenever it feels itis required to stabilize the market, or to keep market volatility under control. It is the responsibility of the RBI to keep the exchange rate unaffected at a time of volatility in the foreign currency market. It has been observed that RBI intervenes in the currency market whenever there is any abnormal movement in the exchange rate, either upward or downward.
The RBI buys foreign currency (USD) to depreciate the domestic currency, and sells foreign
currency
when the domestic currency depreciates abnormally. Sometimes the RBI does not intervene at all. In April and May 2006, the Indian Rupee depreciated heavily in the wake of the fall of the BSE Index, but the RBI did not intervene, much as previously the Indian Rupee had appreciated (in January and February 2006) to such a level that it needed to be depreciated solely by market forces.
NATURAL CALAMITIES
Natural calamities may also affect the currency market for a short period of time. In August 2005, Hurricane Katrina affected the entire region around the Gulf of Mexico. This region contributes around one-third of US oil production and accounts for around half of the nation’s refining capacity. Besides, a large part of US oil imports reaches ports in this area. The hurricane caused a huge loss in production of crude oil and natural gas. It affected the prices of crude oil and prices shot up to around USD70 per barrel in a very short time. Automatically, the oil price increased globally and at the same time affected the exchange rate. Since India had to buy more USD to honour its import liability, the Rupee became weaker by around 60-65 paise against the USD.
CONCLUSION
We are living in a global economy. As such, the Indian economy is no longer immune to international news and events, and reacts accordingly. Some countries are now considering converting some portion of their reserve into Euro from USD, and recently a number of
international transactions have started moving from USD to Euro. These changing circumstances may influence the Euro-USD exchange rate. Also, many corporates are now entering into derivative contracts to protect future cash outflow. Further, some corporates also consider options such as double-no-touch barrier, particularly when entering into contract-like structure deposits on foreign currency denominated fund. While entering into such transactions, a corporate has to look into all factors that may influence the exchange rate of the currency pair (such as USDINR, Euro-USD and USD-JPY, and also perhaps USD-CHF and GBP-USD). Nowadays many corporates take Term Liability and enter into transactions by which they can reduce the Rupee interest burden by swiping the same liability into Japanese Yen (JPY), as interest rate on JPY is lower than that on the Indian Rupee. But in this type of transaction, the corporate is exposed to the currency risk of both USD-INR and USD-JPY. In India, direct quotation for USD-INR is available, but direct exchange rate between other foreign currencies (other than USD) and the Indian Rupee is not available. So, if any corporate has to buy JPY to honour its financial liability on the maturity date, it has to undertake two transactions. First of all it will have to buy USD from Indian market against Indian Rupee. Then it will have to buy JPY from the international market against the said USD. At the same time, the corporate has to bear the cost of two transactions in the form of margin, etc. So, in this type of transaction the corporate has to be well-informed about factors that may influence not only USD-INR but also USD-JPY. Some corporates may even undertake such transactions through the Swiss Franc (CHF), if they feel this is less volatile than JPY.
Since different currencies react for different reasons and economic fundamentals, it has been noticed many times that the Indian Rupee may depreciate against the USD, while at the same time other major currencies appreciate against the USD or remain unchanged. Corporates have to pay attention to all factors that may influence the currency market, and only then they can take a correct stance. It has been noticed that despite interest rate hike by FED, the USD depreciates gradually in comparison to other major currencies, primarily due to the release of negative data about current account deficit in the US. It has also been observed that an increase in the Repo rate by RBI results in the Indian Rupee getting marginally stronger against the USD (as on 9 June 2006), but at the same time due to positive data released on the US trade deficit, the USD was still strong against other major currencies, including the Euro.
REFERENCES
WEB-SITES : ?http://www.uofe.org/new_global_currency.html ?http://articles.economictimes.india...654438_1_reserve-currency-global-currency-sdr ?http://fy.iimklive.com/?p=364 ?http://www.helium.com/items/1151886-global-currency-thoughts ?http://220.227.161.86/9900769-772.pdf
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