The world reserve currency can be thought of in a few ways:
In light of those three points, if you ask yourself, what is the current world reserve currency? The answer is the US dollar (and Euro dollars, which are technically a part of the US dollar M3 money supply -- completely different and not to be confused with EURUSD in spite of the similar pronunciation).
Throughout history, there have been periods where central banks and nation-states have come to agreements as to what the reserve currency should be. In 1944, the governing bodies of the world came to the Bretton Woods Agreement, which established gold and the US dollar as bearers of the reserve currency role. Gold was officially dropped from the picture in 1971 via what is now referred to as the Nixon shock.
Reserve Currency as Centerpiece of the Financial Universe
The world reserve currency can be thought of as the centerpiece of the financial markets. Everything else revolves around it, and what happens to the reserve currency affects the entire world. From this line of thought, actions affecting the reserve currency are extremely important to formulating a fundamental analysis viewpoint.
Currently, for instance, we have seen the Federal Reserve expand the money supply, offering the logic that doing so would stimulate the economy. We have thus seen M2, a measure of the US dollar money supply, reach all-time highs in January of 2011 (as well as other measures like MZM and M1).
Because the global economy is anchored around the reserve currency, other central banks have followed along, and have engaged in competitive devaluations -- widely referred to as currency wars.
This is a simple example of how the reserve currency acts as an anchor to the global economy, and how it often leads the way and dictates how the world economy will change.
Political Implications Surrounding the World Currency
Those who control monetary policy of the world currency have immense influence over the global economy, and thus are likely to be caught up in international politics. If the central bank of a nation-state is issuing the reserve currency, it creates the potential for that nation-state to enjoy a material advantage in purchasing power due to the excess demand for its currency, and that the nation-state will enjoy great international political influence as well. This is one reason why some favor a move to a world currency issued by a monetary authority not attached to any single nation-state -- such as the IMF or World Bank (though of course there are contrary perspectives to those arguments as well).
Simple Implications for Traders
For traders, there are a few things we can think about when considering the reserve currency:
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The world reserve currency can be thought of in a few ways:
In light of those three points, if you ask yourself, what is the current world reserve currency? The answer is the US dollar (and Euro dollars, which are technically a part of the US dollar M3 money supply -- completely different and not to be confused with EURUSD in spite of the similar pronunciation).
Throughout history, there have been periods where central banks and nation-states have come to agreements as to what the reserve currency should be. In 1944, the governing bodies of the world came to the Bretton Woods Agreement, which established gold and the US dollar as bearers of the reserve currency role. Gold was officially dropped from the picture in 1971 via what is now referred to as the Nixon shock.
Reserve Currency as Centerpiece of the Financial Universe
The world reserve currency can be thought of as the centerpiece of the financial markets. Everything else revolves around it, and what happens to the reserve currency affects the entire world. From this line of thought, actions affecting the reserve currency are extremely important to formulating a fundamental analysis viewpoint.
Currently, for instance, we have seen the Federal Reserve expand the money supply, offering the logic that doing so would stimulate the economy. We have thus seen M2, a measure of the US dollar money supply, reach all-time highs in January of 2011 (as well as other measures like MZM and M1).
Because the global economy is anchored around the reserve currency, other central banks have followed along, and have engaged in competitive devaluations -- widely referred to as currency wars.
This is a simple example of how the reserve currency acts as an anchor to the global economy, and how it often leads the way and dictates how the world economy will change.
Political Implications Surrounding the World Currency
Those who control monetary policy of the world currency have immense influence over the global economy, and thus are likely to be caught up in international politics. If the central bank of a nation-state is issuing the reserve currency, it creates the potential for that nation-state to enjoy a material advantage in purchasing power due to the excess demand for its currency, and that the nation-state will enjoy great international political influence as well. This is one reason why some favor a move to a world currency issued by a monetary authority not attached to any single nation-state -- such as the IMF or World Bank (though of course there are contrary perspectives to those arguments as well).
Simple Implications for Traders
For traders, there are a few things we can think about when considering the reserve currency:
The world reserve currency can be thought of in a few ways:
In light of those three points, if you ask yourself, what is the current world reserve currency? The answer is the US dollar (and Euro dollars, which are technically a part of the US dollar M3 money supply -- completely different and not to be confused with EURUSD in spite of the similar pronunciation).
Throughout history, there have been periods where central banks and nation-states have come to agreements as to what the reserve currency should be. In 1944, the governing bodies of the world came to the Bretton Woods Agreement, which established gold and the US dollar as bearers of the reserve currency role. Gold was officially dropped from the picture in 1971 via what is now referred to as the Nixon shock.
Reserve Currency as Centerpiece of the Financial Universe
The world reserve currency can be thought of as the centerpiece of the financial markets. Everything else revolves around it, and what happens to the reserve currency affects the entire world. From this line of thought, actions affecting the reserve currency are extremely important to formulating a fundamental analysis viewpoint.
Currently, for instance, we have seen the Federal Reserve expand the money supply, offering the logic that doing so would stimulate the economy. We have thus seen M2, a measure of the US dollar money supply, reach all-time highs in January of 2011 (as well as other measures like MZM and M1).
Because the global economy is anchored around the reserve currency, other central banks have followed along, and have engaged in competitive devaluations -- widely referred to as currency wars.
This is a simple example of how the reserve currency acts as an anchor to the global economy, and how it often leads the way and dictates how the world economy will change.
Political Implications Surrounding the World Currency
Those who control monetary policy of the world currency have immense influence over the global economy, and thus are likely to be caught up in international politics. If the central bank of a nation-state is issuing the reserve currency, it creates the potential for that nation-state to enjoy a material advantage in purchasing power due to the excess demand for its currency, and that the nation-state will enjoy great international political influence as well. This is one reason why some favor a move to a world currency issued by a monetary authority not attached to any single nation-state -- such as the IMF or World Bank (though of course there are contrary perspectives to those arguments as well).
Simple Implications for Traders
For traders, there are a few things we can think about when considering the reserve currency:
The world reserve currency can be thought of in a few ways:
In light of those three points, if you ask yourself, what is the current world reserve currency? The answer is the US dollar (and Euro dollars, which are technically a part of the US dollar M3 money supply -- completely different and not to be confused with EURUSD in spite of the similar pronunciation).
Throughout history, there have been periods where central banks and nation-states have come to agreements as to what the reserve currency should be. In 1944, the governing bodies of the world came to the Bretton Woods Agreement, which established gold and the US dollar as bearers of the reserve currency role. Gold was officially dropped from the picture in 1971 via what is now referred to as the Nixon shock.
Reserve Currency as Centerpiece of the Financial Universe
The world reserve currency can be thought of as the centerpiece of the financial markets. Everything else revolves around it, and what happens to the reserve currency affects the entire world. From this line of thought, actions affecting the reserve currency are extremely important to formulating a fundamental analysis viewpoint.
Currently, for instance, we have seen the Federal Reserve expand the money supply, offering the logic that doing so would stimulate the economy. We have thus seen M2, a measure of the US dollar money supply, reach all-time highs in January of 2011 (as well as other measures like MZM and M1).
Because the global economy is anchored around the reserve currency, other central banks have followed along, and have engaged in competitive devaluations -- widely referred to as currency wars.
This is a simple example of how the reserve currency acts as an anchor to the global economy, and how it often leads the way and dictates how the world economy will change.
Political Implications Surrounding the World Currency
Those who control monetary policy of the world currency have immense influence over the global economy, and thus are likely to be caught up in international politics. If the central bank of a nation-state is issuing the reserve currency, it creates the potential for that nation-state to enjoy a material advantage in purchasing power due to the excess demand for its currency, and that the nation-state will enjoy great international political influence as well. This is one reason why some favor a move to a world currency issued by a monetary authority not attached to any single nation-state -- such as the IMF or World Bank (though of course there are contrary perspectives to those arguments as well).
Simple Implications for Traders
For traders, there are a few things we can think about when considering the reserve currency:
The world reserve currency can be thought of in a few ways:
In light of those three points, if you ask yourself, what is the current world reserve currency? The answer is the US dollar (and Euro dollars, which are technically a part of the US dollar M3 money supply -- completely different and not to be confused with EURUSD in spite of the similar pronunciation).
Throughout history, there have been periods where central banks and nation-states have come to agreements as to what the reserve currency should be. In 1944, the governing bodies of the world came to the Bretton Woods Agreement, which established gold and the US dollar as bearers of the reserve currency role. Gold was officially dropped from the picture in 1971 via what is now referred to as the Nixon shock.
Reserve Currency as Centerpiece of the Financial Universe
The world reserve currency can be thought of as the centerpiece of the financial markets. Everything else revolves around it, and what happens to the reserve currency affects the entire world. From this line of thought, actions affecting the reserve currency are extremely important to formulating a fundamental analysis viewpoint.
Currently, for instance, we have seen the Federal Reserve expand the money supply, offering the logic that doing so would stimulate the economy. We have thus seen M2, a measure of the US dollar money supply, reach all-time highs in January of 2011 (as well as other measures like MZM and M1).
Because the global economy is anchored around the reserve currency, other central banks have followed along, and have engaged in competitive devaluations -- widely referred to as currency wars.
This is a simple example of how the reserve currency acts as an anchor to the global economy, and how it often leads the way and dictates how the world economy will change.
Political Implications Surrounding the World Currency
Those who control monetary policy of the world currency have immense influence over the global economy, and thus are likely to be caught up in international politics. If the central bank of a nation-state is issuing the reserve currency, it creates the potential for that nation-state to enjoy a material advantage in purchasing power due to the excess demand for its currency, and that the nation-state will enjoy great international political influence as well. This is one reason why some favor a move to a world currency issued by a monetary authority not attached to any single nation-state -- such as the IMF or World Bank (though of course there are contrary perspectives to those arguments as well).
Simple Implications for Traders
For traders, there are a few things we can think about when considering the reserve currency:
The world reserve currency can be thought of in a few ways:
In light of those three points, if you ask yourself, what is the current world reserve currency? The answer is the US dollar (and Euro dollars, which are technically a part of the US dollar M3 money supply -- completely different and not to be confused with EURUSD in spite of the similar pronunciation).
Throughout history, there have been periods where central banks and nation-states have come to agreements as to what the reserve currency should be. In 1944, the governing bodies of the world came to the Bretton Woods Agreement, which established gold and the US dollar as bearers of the reserve currency role. Gold was officially dropped from the picture in 1971 via what is now referred to as the Nixon shock.
Reserve Currency as Centerpiece of the Financial Universe
The world reserve currency can be thought of as the centerpiece of the financial markets. Everything else revolves around it, and what happens to the reserve currency affects the entire world. From this line of thought, actions affecting the reserve currency are extremely important to formulating a fundamental analysis viewpoint.
Currently, for instance, we have seen the Federal Reserve expand the money supply, offering the logic that doing so would stimulate the economy. We have thus seen M2, a measure of the US dollar money supply, reach all-time highs in January of 2011 (as well as other measures like MZM and M1).
Because the global economy is anchored around the reserve currency, other central banks have followed along, and have engaged in competitive devaluations -- widely referred to as currency wars.
This is a simple example of how the reserve currency acts as an anchor to the global economy, and how it often leads the way and dictates how the world economy will change.
Political Implications Surrounding the World Currency
Those who control monetary policy of the world currency have immense influence over the global economy, and thus are likely to be caught up in international politics. If the central bank of a nation-state is issuing the reserve currency, it creates the potential for that nation-state to enjoy a material advantage in purchasing power due to the excess demand for its currency, and that the nation-state will enjoy great international political influence as well. This is one reason why some favor a move to a world currency issued by a monetary authority not attached to any single nation-state -- such as the IMF or World Bank (though of course there are contrary perspectives to those arguments as well).
Simple Implications for Traders
For traders, there are a few things we can think about when considering the reserve currency:
The world reserve currency can be thought of in a few ways:
In light of those three points, if you ask yourself, what is the current world reserve currency? The answer is the US dollar (and Euro dollars, which are technically a part of the US dollar M3 money supply -- completely different and not to be confused with EURUSD in spite of the similar pronunciation).
Throughout history, there have been periods where central banks and nation-states have come to agreements as to what the reserve currency should be. In 1944, the governing bodies of the world came to the Bretton Woods Agreement, which established gold and the US dollar as bearers of the reserve currency role. Gold was officially dropped from the picture in 1971 via what is now referred to as the Nixon shock.
Reserve Currency as Centerpiece of the Financial Universe
The world reserve currency can be thought of as the centerpiece of the financial markets. Everything else revolves around it, and what happens to the reserve currency affects the entire world. From this line of thought, actions affecting the reserve currency are extremely important to formulating a fundamental analysis viewpoint.
Currently, for instance, we have seen the Federal Reserve expand the money supply, offering the logic that doing so would stimulate the economy. We have thus seen M2, a measure of the US dollar money supply, reach all-time highs in January of 2011 (as well as other measures like MZM and M1).
Because the global economy is anchored around the reserve currency, other central banks have followed along, and have engaged in competitive devaluations -- widely referred to as currency wars.
This is a simple example of how the reserve currency acts as an anchor to the global economy, and how it often leads the way and dictates how the world economy will change.
Political Implications Surrounding the World Currency
Those who control monetary policy of the world currency have immense influence over the global economy, and thus are likely to be caught up in international politics. If the central bank of a nation-state is issuing the reserve currency, it creates the potential for that nation-state to enjoy a material advantage in purchasing power due to the excess demand for its currency, and that the nation-state will enjoy great international political influence as well. This is one reason why some favor a move to a world currency issued by a monetary authority not attached to any single nation-state -- such as the IMF or World Bank (though of course there are contrary perspectives to those arguments as well).
Simple Implications for Traders
For traders, there are a few things we can think about when considering the reserve currency:
The world reserve currency can be thought of in a few ways:
In light of those three points, if you ask yourself, what is the current world reserve currency? The answer is the US dollar (and Euro dollars, which are technically a part of the US dollar M3 money supply -- completely different and not to be confused with EURUSD in spite of the similar pronunciation).
Throughout history, there have been periods where central banks and nation-states have come to agreements as to what the reserve currency should be. In 1944, the governing bodies of the world came to the Bretton Woods Agreement, which established gold and the US dollar as bearers of the reserve currency role. Gold was officially dropped from the picture in 1971 via what is now referred to as the Nixon shock.
Reserve Currency as Centerpiece of the Financial Universe
The world reserve currency can be thought of as the centerpiece of the financial markets. Everything else revolves around it, and what happens to the reserve currency affects the entire world. From this line of thought, actions affecting the reserve currency are extremely important to formulating a fundamental analysis viewpoint.
Currently, for instance, we have seen the Federal Reserve expand the money supply, offering the logic that doing so would stimulate the economy. We have thus seen M2, a measure of the US dollar money supply, reach all-time highs in January of 2011 (as well as other measures like MZM and M1).
Because the global economy is anchored around the reserve currency, other central banks have followed along, and have engaged in competitive devaluations -- widely referred to as currency wars.
This is a simple example of how the reserve currency acts as an anchor to the global economy, and how it often leads the way and dictates how the world economy will change.
Political Implications Surrounding the World Currency
Those who control monetary policy of the world currency have immense influence over the global economy, and thus are likely to be caught up in international politics. If the central bank of a nation-state is issuing the reserve currency, it creates the potential for that nation-state to enjoy a material advantage in purchasing power due to the excess demand for its currency, and that the nation-state will enjoy great international political influence as well. This is one reason why some favor a move to a world currency issued by a monetary authority not attached to any single nation-state -- such as the IMF or World Bank (though of course there are contrary perspectives to those arguments as well).
Simple Implications for Traders
For traders, there are a few things we can think about when considering the reserve currency:
The world reserve currency can be thought of in a few ways:
In light of those three points, if you ask yourself, what is the current world reserve currency? The answer is the US dollar (and Euro dollars, which are technically a part of the US dollar M3 money supply -- completely different and not to be confused with EURUSD in spite of the similar pronunciation).
Throughout history, there have been periods where central banks and nation-states have come to agreements as to what the reserve currency should be. In 1944, the governing bodies of the world came to the Bretton Woods Agreement, which established gold and the US dollar as bearers of the reserve currency role. Gold was officially dropped from the picture in 1971 via what is now referred to as the Nixon shock.
Reserve Currency as Centerpiece of the Financial Universe
The world reserve currency can be thought of as the centerpiece of the financial markets. Everything else revolves around it, and what happens to the reserve currency affects the entire world. From this line of thought, actions affecting the reserve currency are extremely important to formulating a fundamental analysis viewpoint.
Currently, for instance, we have seen the Federal Reserve expand the money supply, offering the logic that doing so would stimulate the economy. We have thus seen M2, a measure of the US dollar money supply, reach all-time highs in January of 2011 (as well as other measures like MZM and M1).
Because the global economy is anchored around the reserve currency, other central banks have followed along, and have engaged in competitive devaluations -- widely referred to as currency wars.
This is a simple example of how the reserve currency acts as an anchor to the global economy, and how it often leads the way and dictates how the world economy will change.
Political Implications Surrounding the World Currency
Those who control monetary policy of the world currency have immense influence over the global economy, and thus are likely to be caught up in international politics. If the central bank of a nation-state is issuing the reserve currency, it creates the potential for that nation-state to enjoy a material advantage in purchasing power due to the excess demand for its currency, and that the nation-state will enjoy great international political influence as well. This is one reason why some favor a move to a world currency issued by a monetary authority not attached to any single nation-state -- such as the IMF or World Bank (though of course there are contrary perspectives to those arguments as well).
Simple Implications for Traders
For traders, there are a few things we can think about when considering the reserve currency:
The world reserve currency can be thought of in a few ways:
In light of those three points, if you ask yourself, what is the current world reserve currency? The answer is the US dollar (and Euro dollars, which are technically a part of the US dollar M3 money supply -- completely different and not to be confused with EURUSD in spite of the similar pronunciation).
Throughout history, there have been periods where central banks and nation-states have come to agreements as to what the reserve currency should be. In 1944, the governing bodies of the world came to the Bretton Woods Agreement, which established gold and the US dollar as bearers of the reserve currency role. Gold was officially dropped from the picture in 1971 via what is now referred to as the Nixon shock.
Reserve Currency as Centerpiece of the Financial Universe
The world reserve currency can be thought of as the centerpiece of the financial markets. Everything else revolves around it, and what happens to the reserve currency affects the entire world. From this line of thought, actions affecting the reserve currency are extremely important to formulating a fundamental analysis viewpoint.
Currently, for instance, we have seen the Federal Reserve expand the money supply, offering the logic that doing so would stimulate the economy. We have thus seen M2, a measure of the US dollar money supply, reach all-time highs in January of 2011 (as well as other measures like MZM and M1).
Because the global economy is anchored around the reserve currency, other central banks have followed along, and have engaged in competitive devaluations -- widely referred to as currency wars.
This is a simple example of how the reserve currency acts as an anchor to the global economy, and how it often leads the way and dictates how the world economy will change.
Political Implications Surrounding the World Currency
Those who control monetary policy of the world currency have immense influence over the global economy, and thus are likely to be caught up in international politics. If the central bank of a nation-state is issuing the reserve currency, it creates the potential for that nation-state to enjoy a material advantage in purchasing power due to the excess demand for its currency, and that the nation-state will enjoy great international political influence as well. This is one reason why some favor a move to a world currency issued by a monetary authority not attached to any single nation-state -- such as the IMF or World Bank (though of course there are contrary perspectives to those arguments as well).
Simple Implications for Traders
For traders, there are a few things we can think about when considering the reserve currency:
The world reserve currency can be thought of in a few ways:
In light of those three points, if you ask yourself, what is the current world reserve currency? The answer is the US dollar (and Euro dollars, which are technically a part of the US dollar M3 money supply -- completely different and not to be confused with EURUSD in spite of the similar pronunciation).
Throughout history, there have been periods where central banks and nation-states have come to agreements as to what the reserve currency should be. In 1944, the governing bodies of the world came to the Bretton Woods Agreement, which established gold and the US dollar as bearers of the reserve currency role. Gold was officially dropped from the picture in 1971 via what is now referred to as the Nixon shock.
Reserve Currency as Centerpiece of the Financial Universe
The world reserve currency can be thought of as the centerpiece of the financial markets. Everything else revolves around it, and what happens to the reserve currency affects the entire world. From this line of thought, actions affecting the reserve currency are extremely important to formulating a fundamental analysis viewpoint.
Currently, for instance, we have seen the Federal Reserve expand the money supply, offering the logic that doing so would stimulate the economy. We have thus seen M2, a measure of the US dollar money supply, reach all-time highs in January of 2011 (as well as other measures like MZM and M1).
Because the global economy is anchored around the reserve currency, other central banks have followed along, and have engaged in competitive devaluations -- widely referred to as currency wars.
This is a simple example of how the reserve currency acts as an anchor to the global economy, and how it often leads the way and dictates how the world economy will change.
Political Implications Surrounding the World Currency
Those who control monetary policy of the world currency have immense influence over the global economy, and thus are likely to be caught up in international politics. If the central bank of a nation-state is issuing the reserve currency, it creates the potential for that nation-state to enjoy a material advantage in purchasing power due to the excess demand for its currency, and that the nation-state will enjoy great international political influence as well. This is one reason why some favor a move to a world currency issued by a monetary authority not attached to any single nation-state -- such as the IMF or World Bank (though of course there are contrary perspectives to those arguments as well).
Simple Implications for Traders
For traders, there are a few things we can think about when considering the reserve currency:
The world reserve currency can be thought of in a few ways:
In light of those three points, if you ask yourself, what is the current world reserve currency? The answer is the US dollar (and Euro dollars, which are technically a part of the US dollar M3 money supply -- completely different and not to be confused with EURUSD in spite of the similar pronunciation).
Throughout history, there have been periods where central banks and nation-states have come to agreements as to what the reserve currency should be. In 1944, the governing bodies of the world came to the Bretton Woods Agreement, which established gold and the US dollar as bearers of the reserve currency role. Gold was officially dropped from the picture in 1971 via what is now referred to as the Nixon shock.
Reserve Currency as Centerpiece of the Financial Universe
The world reserve currency can be thought of as the centerpiece of the financial markets. Everything else revolves around it, and what happens to the reserve currency affects the entire world. From this line of thought, actions affecting the reserve currency are extremely important to formulating a fundamental analysis viewpoint.
Currently, for instance, we have seen the Federal Reserve expand the money supply, offering the logic that doing so would stimulate the economy. We have thus seen M2, a measure of the US dollar money supply, reach all-time highs in January of 2011 (as well as other measures like MZM and M1).
Because the global economy is anchored around the reserve currency, other central banks have followed along, and have engaged in competitive devaluations -- widely referred to as currency wars.
This is a simple example of how the reserve currency acts as an anchor to the global economy, and how it often leads the way and dictates how the world economy will change.
Political Implications Surrounding the World Currency
Those who control monetary policy of the world currency have immense influence over the global economy, and thus are likely to be caught up in international politics. If the central bank of a nation-state is issuing the reserve currency, it creates the potential for that nation-state to enjoy a material advantage in purchasing power due to the excess demand for its currency, and that the nation-state will enjoy great international political influence as well. This is one reason why some favor a move to a world currency issued by a monetary authority not attached to any single nation-state -- such as the IMF or World Bank (though of course there are contrary perspectives to those arguments as well).
Simple Implications for Traders
For traders, there are a few things we can think about when considering the reserve currency:
The world reserve currency can be thought of in a few ways:
In light of those three points, if you ask yourself, what is the current world reserve currency? The answer is the US dollar (and Euro dollars, which are technically a part of the US dollar M3 money supply -- completely different and not to be confused with EURUSD in spite of the similar pronunciation).
Throughout history, there have been periods where central banks and nation-states have come to agreements as to what the reserve currency should be. In 1944, the governing bodies of the world came to the Bretton Woods Agreement, which established gold and the US dollar as bearers of the reserve currency role. Gold was officially dropped from the picture in 1971 via what is now referred to as the Nixon shock.
Reserve Currency as Centerpiece of the Financial Universe
The world reserve currency can be thought of as the centerpiece of the financial markets. Everything else revolves around it, and what happens to the reserve currency affects the entire world. From this line of thought, actions affecting the reserve currency are extremely important to formulating a fundamental analysis viewpoint.
Currently, for instance, we have seen the Federal Reserve expand the money supply, offering the logic that doing so would stimulate the economy. We have thus seen M2, a measure of the US dollar money supply, reach all-time highs in January of 2011 (as well as other measures like MZM and M1).
Because the global economy is anchored around the reserve currency, other central banks have followed along, and have engaged in competitive devaluations -- widely referred to as currency wars.
This is a simple example of how the reserve currency acts as an anchor to the global economy, and how it often leads the way and dictates how the world economy will change.
Political Implications Surrounding the World Currency
Those who control monetary policy of the world currency have immense influence over the global economy, and thus are likely to be caught up in international politics. If the central bank of a nation-state is issuing the reserve currency, it creates the potential for that nation-state to enjoy a material advantage in purchasing power due to the excess demand for its currency, and that the nation-state will enjoy great international political influence as well. This is one reason why some favor a move to a world currency issued by a monetary authority not attached to any single nation-state -- such as the IMF or World Bank (though of course there are contrary perspectives to those arguments as well).
Simple Implications for Traders
For traders, there are a few things we can think about when considering the reserve currency:
The world reserve currency can be thought of in a few ways:
In light of those three points, if you ask yourself, what is the current world reserve currency? The answer is the US dollar (and Euro dollars, which are technically a part of the US dollar M3 money supply -- completely different and not to be confused with EURUSD in spite of the similar pronunciation).
Throughout history, there have been periods where central banks and nation-states have come to agreements as to what the reserve currency should be. In 1944, the governing bodies of the world came to the Bretton Woods Agreement, which established gold and the US dollar as bearers of the reserve currency role. Gold was officially dropped from the picture in 1971 via what is now referred to as the Nixon shock.
Reserve Currency as Centerpiece of the Financial Universe
The world reserve currency can be thought of as the centerpiece of the financial markets. Everything else revolves around it, and what happens to the reserve currency affects the entire world. From this line of thought, actions affecting the reserve currency are extremely important to formulating a fundamental analysis viewpoint.
Currently, for instance, we have seen the Federal Reserve expand the money supply, offering the logic that doing so would stimulate the economy. We have thus seen M2, a measure of the US dollar money supply, reach all-time highs in January of 2011 (as well as other measures like MZM and M1).
Because the global economy is anchored around the reserve currency, other central banks have followed along, and have engaged in competitive devaluations -- widely referred to as currency wars.
This is a simple example of how the reserve currency acts as an anchor to the global economy, and how it often leads the way and dictates how the world economy will change.
Political Implications Surrounding the World Currency
Those who control monetary policy of the world currency have immense influence over the global economy, and thus are likely to be caught up in international politics. If the central bank of a nation-state is issuing the reserve currency, it creates the potential for that nation-state to enjoy a material advantage in purchasing power due to the excess demand for its currency, and that the nation-state will enjoy great international political influence as well. This is one reason why some favor a move to a world currency issued by a monetary authority not attached to any single nation-state -- such as the IMF or World Bank (though of course there are contrary perspectives to those arguments as well).
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