Simit Patel

Russia is planning to support George Soros' idea of turning Special Drawing Rights -- a financial asset managed by the IMF that is a basket of currencies -- into the new global currency standard.

Pravda.ru reports:

Russia plans to ask the International Monetary Fund to study the possibility of creating the sub-national reserve currency. The plans also stipulate the diversification of the currency structure of reserves, operations of national banks and international financial organizations. Russia plans to set forth the suggestions to world leaders during the G20 summit.

“We believe that one should consider the role of the IMF in the process and decide whether measures should be taken to let SDR (Special Drawing Rights) become the globally recognized reserve currency,” the document runs.

In my opinion, the good news is that this addresses the key issue of the economic crisis -- the dollar standard. Whether this is the right solution, though, is another story.

If there is a new world currency that is valued on the basis of a basket of currencies, I would imagine the dollar would enter at a lower rate, as a way of reconciling that the US may not be able to pay back its sovereign debt.

Thoughts?

__________________
My IT Blog | My Trading Bio | Google+

Thank

 

mattman

hmm, I heard about the SDR possibility before. It would take a lot of politicking before they do anything. I think a new gold standard would be ideal for global stability, but think many central bankers would oppose this idea.

Thank

 

sphereless

How would this affect the forex markets?

Thank

 

Simit Patel

hey sphereless,

if there is a new world currency, the exchange rate that other currencies are converted into it will be a huge factor IMHO that will likely impact the price of everything else. personally in my opinion, i think the US dollar will get a lower buy-in price relative to currencies that hold US treasury debt. i think this may be offered as the solution if it is ever believed by monetary authorities that the US cannot repay its sovereign debt.

a new world currency would also mean the US dollar would lose its role as world reserve currency. this would sharply decrease the amount of savings held in US dollars, particularly outside of the US. this would also decrease the value of US dollars.

i focused on the US dollar here because that is the scenario i am most familiar with, but i think the basic theme will be that the insolvent a nation is, the more its currency will get devalued with the introduction of a world currency.

anyway, just my opinion.

Thank

 

sphereless

I some what understand what you are saying and am in the boat of people that think that the US can not pay back it's debt...

I was curious how you felt this would affect currency trading? Would the Forex market still be around? There would be a basket of currencies that made up this new reserve currency, would people still be able to bet against or for certain pairs with in this basket?


Thanks for sharing your thoughts and knowledge,

Sphereless

Thank

 

Simit Patel

hey sphereless,

i would expect that the process would take years to unfold, but i think greater restrictions on what currency traders can and cannot do is likely. earlier this year we saw proposals to limit leverage for forex traders -- i think that's a sign of things to come. what opportunities are created depends on how exactly regulatory changes unfold, IMHO.

Thank

 

john1

Default
I some what understand what you are saying and am in the boat of people that think that the US can not pay back it's debt...

I was curious how you felt this would affect currency trading? Would the Forex market still be around? There would be a basket of currencies that made up this new reserve currency, would people still be able to bet against or for certain pairs with in this basket?



jhon

Thank