Most of the time I get one or two emails after my updates here. Sometimes there’s none. Few posts, however, generate interest and I receive a fair number of questions regarding them. Such was the case with Call for a new global currency. Readers were interested of how this would work, what possibly could replace the dollar. Mainstream press also picked on the subject, as was evident to me during flight here. Lady sitting next to me started a conversation about financial matters, which, ultimately, drifted to this issue, since she had just read some article about it.
What China, and supporters, are proposing is not really an introduction of any “new currency”. There would not be any coins or notes put into circulation. While details of the plan are murky, proposal is for an accounting unit based on a basket of currencies, including the USD. For those who don’t know, there is nothing new about the concept. In 1969 International Monetary Fund created just this type of “currency”, known as “Special Drawing Rights”, or SDR’s. In the original version unit of SDR was pegged to the dollar, but evolved over the years to be based on four different currencies. This new push away from dollar might bring SDR’s from obscurity. Proponents would expand the role of SDR’s to use for pricing of commodities, main converter of international trade as well as denominator of some debt.
Idea in itself has some merits, but would require world wide agreements. First, the exact composition of SDR’s, or whatever name prevails, would likely be a subject of lengthy and heated debate. Some countries will probably reject the idea outright, like USA. Adoption of a mechanism like that could make it very hard for the Treasury to finance our growing debt. Banks would have to adopt uniform accounting standards, private companies need to be willing to accept SDR’s as payments and so on. Frankly, even if the world community agreed to go along with something of this sort, it still would take years (decade?) to take full effect.
Some people fear that if this proposal is rejected, China will dump her USD holdings. Chances for it to happen are slim, as this action would severely depreciate their reserves, something Chinese officials are desperately trying to avoid. What we should expect, however, is far less money from China to fund our future debt. This is an area for concern. With other major buyers of Treasury paper, Japan, oil exporters and others, bringing less dollars from exports, it will be difficult to fill void China’s buying absence creates. I’m sure Washington is fully aware of this.
I’m not trading today or even tomorrow, still enjoying the sun, but think it is time to review a longer term trade discussed couple of weeks ago.
Currency pair in question is EUR-PLN.
This was described in AIG bailout a farce. Plan was, and is, to sell it at 4.4000 with an objective of about 3000 pips. So far price is moving in opposite direction. Wit this in mind I’m considering additional sell of this cross somewhere between 4.7000 and 4.8000. This would give it a reasonably stop at 4.9500 or so. My entry will be creation of strong reversal candle on daily chart. Doji, hanging man or one of the stars are what I’m looking for. It is enough that I visit the chart once a day.
One more of “set and forget”trade.
Our old friend, EUR-GBP, which produced couple of decent trades last week. Here is 4H chart for a change. Once again I want to sell it, this time at 0.9130. Objective is large, for this pair, of 200-230 pips. Well, it is not exactly set and forget, but I can place the order and not have to worry about for a day or two(probably). Just long enough to get home.
No post tomorrow, but should be home Monday night my time, so if not too tired, I’ll update blog Tuesday at customary time.
Thanks for taking a break from vacation and posting this. Let me guess, got a little burnt by the sun and now you are hiding from it? I never heard about SDR before and they’ve been around for 40 years? I’m sure we’ll hear much more about them as time goes on. Great post.
Hi Mike. Hope you are having good time. You are right, this has become very popular topic, but like Renata, I also have not heard about SDR’s. Until now.
[...] bookmarks tagged special Special Drawing Rights. | fxmadness.com saved by 2 others vasglorious bookmarked on 03/29/09 | [...]
Hope you will follow up on EUR-GBP, if trade happens, upon your return.
Do you ever trade Mexican Peso? If so, how would you rate it as a tradeable instrument, good or bad?
[...] last night, breaking myself in slowly. I’m placing additional order to the set up from last post. Trade based on 4H chart is still valid, but there is also room for a smaller trade. I’m using [...]
[...] large position? Happened many times to countless people and will happen again. In the post Special Drawing Rights I took a look at 4H chart of EUR-GBP. A sell order was placed there. Since this had been [...]
[...] closed late yesterday. This particular set up was discussed few times before, most recently in Special Drawing Rigths, I believe. Entry was at few pips above 4.4000 and target is 4.1000, or 3000 pips. Late [...]
[...] This year has seen a lot of proposals, ideas rather, of how to replace international role of USD. Special Drawing Rights have been widely discussed along with the old stand by, the Gold Standard. Among countries calling [...]
[...] for changes in international finances. One of the proposed alternatives mentioned most often were Special Drawing Rights. So far nothing came of it yet, but some noticeable changes when it comes to currency reserves took [...]
[...] While the US Dollar is certainly not facing an immediate demise as a world reserve currency, it is going through pains. Never mind the calls from China and others about creating a “new supranational currency” or the talk about the US Bankruptcy. This may happen, but tomorrow or next year. However, there are signs that the USD importance is slipping a little bit and one was just made by the International Monetary Fund when it revealed the new weighting of the Special Drawing Rights. [...]
[...] tomorrow or next year. However, there are signs that the USD importance is slipping a little bit and one was just made by the International Monetary Fund when it revealed the new weighting of the Special Drawing Rights. [...]
[...] in November 2010, the International Monetary Fund adjusted the valuation of its Special Drawing Rights. It contains the four major currencies- the USD, the Euro, the Yen and the British Pound. In the [...]
[...] Back in November 2010, the International Monetary Fund adjusted the valuation of its Special Drawing Rights. It contains the four major currencies- the USD, the Euro, the Yen and the British [...]
[...] For some time now China has been pushing for a wider role of its currency, the Yuan, in world finances. For the most part that was met with the same response as the world was getting for its wishes to see the Yuan appreciate – lack of commitment. Until now. During the G-20 meeting in Paris, Dominique Strauss-Kahn, the head of the International Monetary Fund, stated publicly that he wants to see Chinese currency included in the Special Drawing Rights. [...]
[...] For some time now China has been pushing for a wider role of its currency, the Yuan, in world finances. For the most part that was met with the same response as the world was getting for its wishes to see the Yuan appreciate – lack of commitment. Until now. During the G-20 meeting in Paris, Dominique Strauss-Kahn, the head of the International Monetary Fund, stated publicly that he wants to see Chinese currency included in the Special Drawing Rights. [...]