Gold Rises Above $900 An Ounce Again

Gold rallied above $900 an ounce on Wednesday as investors bet a recent plunge was overdone. A weaker dollar helped boost the metal's hedge appeal.

April gold jumped to $910.70 an ounce, up $14.80 on the session. The metal reached as high as $913.80 for the session.

The dollar fell sharply versus the yen and came under modest pressure against the euro on Wednesday, improving gold's hedge value. The dollar tested its 2-week low from yesterday against the euro and backed away from a four-month best versus the yen.

Gold's gains were somewhat limited by a drop in crude oil prices. Light sweet crude fell $3.38 to finish at $42.33 per barrel. U.S. commercial crude oil inventories increased 749,000 barrels in the week ended March 6, according to Energy Information Administration data.

Financial Instruments

There are several types of financial instruments commonly used.
Forwards
One way to deal with the Forex risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a few days, months or years.
Futures
Foreign currency futures are forward transactions with standard contract sizes and maturity dates — for example, 500,000 British pounds for next November at an agreed rate. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.
Swaps
The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not contracts and are not traded through an exchange.
Spot
A spot transaction is a two-day delivery transaction for most currency pairs (but one-day for USD/CAD and some others), as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the Spot market

High Leverage

The idea of margin (leverage) and floating loss is another important trading concept and is perhaps best understood using an example. Most retail Forex market makers permit 100:1 leverage, but also, crucially, require you to have a certain amount of money in your account to protect against a critical loss point. For example, if a $100,000 position is held in EUR/USD on 100:1 leverage, the trader has to put up $1,000 to control the position. However, in the event of a declining value of your positions, Forex market makers, mindful of the fast nature of forex price swings and the amplifying effect of leverage, typically do not allow their traders to go negative and make up the difference at a later date. In order to make sure the trader does not lose more money than is held in the account, forex market makers typically employ automatic systems to close out positions when clients run out of margin (the amount of money in their account not tied to a position). If the trader has $2,000 in his account, and he is buying a $100,000 lot of EUR/USD, he has $1,000 of his $2,000 tied up in margin, with $1,000 left to allow his position to fluctuate downward without being closed out.
Typically a trader's retail forex platform will show him three important numbers associated with his account: his balance, his equity, and his margin remaining. If trader X has two positions: $100,000 long (buy) in EUR/USD, and $100,000 short (sell) in GBP/USD, and he has $10,000 in his account, his positions would look as follows: Because of the 100:1 leverage, it took him $1,000 to control each position. This means that he has used up $2,000 in his margin, out of a $10,000 account, and thus he has $8,000 of margin still available. With this margin, he can either take more positions or keep the margin relatively high to allow his current positions to be maintained in the event of downturns. If the client chooses to open a new position of $100,000, this will again take another $1,000 of his margin, leaving $7,000. He will have used up $3,000 in margin among the three positions. The other way margin will decrease is if the positions he currently has open lose money. If one of his 3 positions of $100,000 decrease by $5,000 in value (which is fairly common), he now has, of his original $7,000 in margin, only $2,000 left.
If you have a $10,000 account and only open one $100,000 position, this has committed only $1,000 of your money plus you must maintain $1,000 in margin. While this leaves $9,000 free in your account, it is possible to lose almost all of it if the speculation loses money.

Retail forex

In financial markets, the retail forex (retail off-exchange currency trading or retail FX) market is a subset of the larger foreign exchange market. This "market has long been plagued by swindlers preying on the gullible," according to The New York Times[1]. Whilst there may be a number of fully regulated, reputable international companies that provide a highly transparent and honest service, it's commonly thought that about 90% of all retail FX traders lose money. [2] [3]
It is now possible to trade cash FX, or forex (short for Foreign Exchange (FX)) or currencies around the clock with hundreds of foreign exchange brokers through trading platforms. The reason that the business is so profitable is because in many cases brokers are taking the opposite side of the trade, and therefore turning client capital directly into broker profit as the average account loses money. Some brokers provide a matching service, charging a commission instead of taking the opposite site of the trade and "netting the spread", as it is referred to within the forex "industry."
Recently forex brokers have become increasingly regulated. Minimum capital requirements of US$20m now apply in the US, as well as stringent requirements now in Germany and the United Kingdom. Switzlerand now requires forex brokers to become a bank before conducting fx brokerage business from Switzerland.
Algorythmic or machine based formula trading has become increasingly popular in the FX market,with a number of popular packages allowing the customer to program his own studies.
The most traded of the "major" currencies is the pair known as the EUR/USD, due to its size, median volatility and relatively low "spread", referring to the difference between the bid and the ask price. This is usually measured in "pips", normally 1/100 of a full point.
According to the October 2008 issue of e-Forex Magazine, the retail FX market is seeing continued explosive growth despite, and perhaps because of, losses in other markets like global equities in 2008.

Not beating the market

The foreign exchange market is a zero sum game[7] in which there are many experienced well-capitalized professional traders (e.g. working for banks) who can devote their attention full time to trading. An inexperienced retail trader will have a significant information disadvantage compared to these traders.
Although it is possible for a few experts to successfully arbitrage the market for an unusually large return, this does not mean that a larger number could earn the same returns even given the same tools, techniques and data sources. This is because the arbitrages are essentially drawn from a pool of finite size; although information about how to capture arbitrages is a nonrival good, the arbritrages themselves are a rival good. (To draw an analogy, the total amount of buried treasure on an island is the same, regardless of how many treasure hunters have bought copies of a treasure map.)
Retail traders are - almost by definition - undercapitalized. Thus they are subject to the problem of gambler's ruin. In a fair game (one with no information advantages) between two players that continues until one trader goes bankrupt, the player with the lower amount of capital has a higher probability of going bankrupt first. Since the retail speculator is effectively playing against the market as a whole - which has nearly infinite capital - he will almost certainly go bankrupt.
The retail trader always pays the bid/ask spread which makes his odds of winning less than those of a fair game. Additional costs may include margin interest, or if a spot position is kept open for more than one day the trade may be "resettled" each day, each time costing the full bid/ask spread.
According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "[15]
Paul Belogour, the Managing Director of a Boston based retail forex trader, was quoted by the Financial Times as saying, "Trading foreign exchange is an excellent way for investors to find out how tough the markets really are. But I say to customers: if this is money you have worked hard for – that you cannot afford to lose – never, never invest in foreign exchange."

Forex scam

A forex (or foreign exchange) scam is any trading scheme used to defraud individual traders by convincing them that they can expect to gain a high profit by trading in the foreign exchange market. Currency trading "has become the fraud du jour" as of early 2008, according to Michael Dunn of the U.S. Commodity Futures Trading Commission. [1] But "the market has long been plagued by swindlers preying on the gullible," according to the New York Times [2]. "The average individual foreign-exchange-trading victim loses about $15,000, according to CFTC records" according to The Wall Street Journal. [3]. The North American Securities Administrators Association says that "off-exchange forex trading by retail investors is at best extremely risky, and at worst, outright fraud." [4]
“In a typical case, investors may be promised tens of thousands of dollars in profits in just a few weeks or months, with an initial investment of only $5,000. Often, the investor’s money is never actually placed in the market through a legitimate dealer, but simply diverted – stolen – for the personal benefit of the con artists.”[5]
In August, 2008 the CFTC set up a special task force to deal with growing foreign exchange fraud.”[6]
The forex market is a zero-sum game[7] , meaning that whatever one trader gains, another loses, except that brokerage commissions and other transaction costs are subtracted from the results of all traders, technically making forex a "negative-sum" game.
These scams might include churning of customer accounts for the purpose of generating commissions, selling software that is supposed to guide the customer to large profits, [8] improperly managed "managed accounts", [9] false advertising, [10] Ponzi schemes and outright fraud. [4] [11] It also refers to any retail forex broker who indicates that trading foreign exchange is a low risk, high profit investment. [12]
The U.S. Commodity Futures Trading Commission (CFTC), which loosely regulates the foreign exchange market in the United States, has noted an increase in the amount of unscrupulous activity in the non-bank foreign exchange industry.[13]
An official of the National Futures Association was quoted [14] as saying, "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically..." Between 2001 and 2006 the U.S. Commodity Futures Trading Commission has prosecuted more than 80 cases involving the defrauding of more than 23,000 customers who lost $350 million. From 2001 to 2007, about 26,000 people lost $460 million in forex frauds. [1] CNN quoted Godfried De Vidts, President of the Financial Markets Association, a European body, as saying, "Banks have a duty to protect their customers and they should make sure customers understand what they are doing. Now if people go online, on non-bank portals, how is this control being done?

Changes in reserves

The quantity of foreign exchange reserves can change as a central bank implements monetary policy. A central bank that implements a fixed exchange rate policy may face a situation where supply and demand would tend to push the value of the currency lower or higher (an increase in demand for the currency would tend to push its value higher, and a decrease lower). In a fixed exchange rate regime, these operations occur automatically, with the central bank clearing any excess demand or supply by purchasing or selling the foreign currency. Mixed exchange rate regimes ('dirty floats', target bands or similar variations) may require the use of foreign exchange operations (sterilized or unsterilized[clarification needed]) to maintain the targeted exchange rate within the prescribed limits (China has been repeatedly accused of doing this by the USA - as Geithner did recently).
Foreign exchange operations that are unsterilized will cause an expansion or contraction in the amount of domestic currency in circulation, and hence directly affect monetary policy and inflation: An exchange rate target cannot be independent of an inflation target. Countries that do not target a specific exchange rate are said to have a floating exchange rate, and allow the market to set the exchange rate; for countries with floating exchange rates, other instruments of monetary policy are generally preferred and they may limit the type and amount of foreign exchange interventions. Even those central banks that strictly limit foreign exchange interventions, however, often recognize that currency markets can be volatile and may intervene to counter disruptive short-term movements.
To maintain the same exchange rate if there is increased demand, the central bank can issue more of the domestic currency and purchase the foreign currency, which will increase the sum of foreign reserves. In this case, the currency's value is being held down; since (if there is no sterilization) the domestic money supply is increasing (money is being 'printed'), this may provoke domestic inflation (the value of the domestic currency falls relative to the value of goods and services).
Since the amount of foreign reserves available to defend a weak currency (a currency in low demand) is limited, a foreign exchange crisis or devaluation could be the end result. For a currency in very high and rising demand, foreign exchange reserves can theoretically be continuously accumulated, although eventually the increased domestic money supply will result in inflation and reduce the demand for the domestic currency (as its value relative to goods and services falls). In practice, some central banks, through open market operations aimed at preventing their currency from appreciating, can at the same time build substantial reserves.
In practice, few central banks or currency regimes operate on such a simplistic level, and numerous other factors (domestic demand, production and productivity, imports and exports, relative prices of goods and services, etc) will affect the eventual outcome. As certain impacts (such as inflation) can take many months or even years to become evident, changes in foreign reserves and currency values in the short term may be quite large as different markets react to imperfect data.

Foreign exchange reserves

Official international reserves, the means of official international payments, formerly consisted only of gold, and occasionally silver. But under the Bretton Woods system, the US dollar functioned as a reserve currency, so it too became part of a nation's official international reserve assets. From 1944-1968, the US dollar was convertible into gold through the Federal Reserve System, but after 1968 only central banks could convert dollars into gold from official gold reserves, and after 1973 no individual or institution could convert US dollars into gold from official gold reserves. Since 1973, all major currencies have not been convertible into gold from official gold reserves. Individuals and institutions must now buy gold in private markets, just like other commodities. Even though US dollars and other currencies are no longer convertible into gold from official gold reserves, they still can function as official international reserves

Foreign currency mortgage

A foreign currency mortgage is a mortgage which is repayable in a currency other than the currency of the country in which the borrower is a resident. Foreign currency mortgages can be used to finance both personal mortgages and corporate mortgages.
The interest rate charged on a Foreign currency mortgage is based on the interest rates applicable to the currency in which the mortgage is denominated and not the interest rates applicable to the borrower's own domestic currency. Therefore, a Foreign currency mortgage should only be considered when the interest rate on the foreign currency is significantly lower than the borrower can obtain on a mortgage taken out in his or her domestic currency.
Borrowers should bear in mind that ultimately they have a liability to repay the mortgage in another currency and currency exchange rates constantly change. This means that if the borrower's domestic currency was to strengthen against the currency in which the mortgage is denominated, then it would cost the borrower less in domestic currency to fully repay the mortgage. Therefore, in effect, the borrower makes a capital saving.
Conversely, if the exchange rate of borrowers domestic currency were to weaken against the currency in which the mortgage is denominated, then it would cost the borrower more in their domestic currency to repay the mortgage. Therefore, the borrower makes a capital loss.
When the value of the mortgage is large, it may be possible to reduce or limit the risk in the exchange exposure by hedging (see below).
Managed currency mortgages can help to reduce risk exposure. A borrower can allow a specialist currency manager to manage their loan on their behalf (through a limited power of attorney), where the currency manager will switch the borrower's debt in and out of foreign currencies as they change in value against the base currency. A successful currency manager will move the borrower's debt into a currency which subsequently falls in value against the base currency. The manager can then switch the loan back into the base currency (or another weakening currency) at a better exchange rate, thereby reducing the value of the loan. A further benefit of this product is that the currency manager will try to select currencies with a lower interest rate than the base currency, and the borrower therefore can make substantial interest savings.
There are risks associated with these types of mortgages and the borrower must be prepared to accept an (often limited) increase in the value of their debt if there are adverse movements in the currency markets.
A successful currency manager may be able to use the currency markets to pay off a borrower's loan (through a combination of debt reduction and interest rate savings) within the normal lifetime of the loan, while the borrower pays on an interest only basis

Management risk

DGCs, like all financial institutions and public securities, have a layer of risk in the form of the management of the issuing institution. Controls aimed to limit management risk are called "governance".
GoldMoney is the only DGC that is a government registered money service business [1].
Imitating e-gold's success, several companies claiming to be Digital Gold Currencies sprang up and failed between 1999 and 2004, including OS-Gold[5], Standard Reserve[6] and INTGold[7]. All three of these companies failed because the principals diverted deposits for other purposes instead of holding them in the form of gold.
In each of the above cases, account holders lost several million dollars worth of gold when the "institution" failed. However, the warning signs were evident from the beginning. All three of the failed companies were created and operated by people in the high-yield investment program "business", and the people who lost their funds were almost entirely HYIP players. None of the failed pseudo-DGCs had established a governance system to protect the reserves from being pillaged by management.
In contrast to those notable failures, e-gold and GoldMoney have both established governance systems that provide a high level of transparency. E-gold publishes a real-time "examiner"[8] on their website that shows the total amount of e-currency in circulation, as well as a list of the gold bars held in trust to back the value in the accounts. E-gold's governance system is self-certified, meaning that there is no third-party verification of their published figures. GoldMoney goes a significant step further by publishing quarterly third-party audits[9] of their system along with a list of the serial numbers of the bullion bars held in trust.
There are no specific financial regulations governing DGC providers, so they operate under self-regulation. DGC providers are not banks and therefore not subject to bank regulations that pertain to fractional reserve lending. However, DGCs do provide a method for transferring money from one person to another, and may therefore fall under regulations pertaining to currency transactions in some jurisdictions.
The Global Digital Currency Association (GDCA), which was founded in 2002, is a non-profit association of online currency operators, exchangers, merchants and users. The GDCA is an example of the DGC industry's attempt at self-regulation. On their website they claim their goal is to "further the interests of the industry as a whole and help with fighting fraud and other illegal activities, arbitrate disputes and act as escrow agent when and where required."[10] Of the current DGC providers, Pecunix, Liberty Reserve and eight others have become members of the association. It costs one gram of gold to file a complaint if you are not a member, and the list of filable complaints is not exhaustive. Their domain name is registered anonymously through domains by proxy, see whois

Exchange risk

Digital gold currency is a form of representative money as it directly represents gold metal on deposit or in custody[2], and denominated in units of mass (grams or troy ounces). Just as the exchange rates of national currencies fluctuate against each other, the exchange rates of DGCs fluctuate against national currencies, which is reflected by the price of gold in a particular currency. This creates exchange risk for any account holder, in the same way one would experience exchange risk by holding a bank account in a foreign currency.
Some DGC holders make use of the digital currency for daily monetary transactions, even though most of their normal income and expenses are denominated in the national currency of their home country. Fluctuations in the value of gold against their national currency can create some confusion and difficulty for new users as they see the "value" of their DGC account fluctuate in terms of their native currency.
In contrast to exchange risk, caused by gold's fluctuation against national currency, the purchasing power of gold (and therefore DGCs) is measured by its fluctuation against other commodities, goods and services. Since gold has historically been the refuge of choice in times of inflation or economic hardship, the purchasing power of gold becomes stronger during times of negative sentiment in the markets[3]. Due to this speculative interference, there are times when purchasing power has also declined. In 2007-2008, gold volatility has closely tracked the recent run-up in oil prices

Exchanging national currency

Some providers, like e-gold, Pecunix, Liberty Reserve do not sell DGC directly to clients. For those DGCs, e-currency must be bought and sold via a digital currency exchanger such as GoldNow or London Gold Exchange.
Currency exchangers accept payment in national currencies by a variety of methods, including Bank Wire, Direct Deposit, Check, Money Order. Some exchangers also sell and fund pre-paid debit cards to make it easier for their clientele to convert DGC into an easily spendable form of national currency.
According to the DGC issuers that do not directly sell DGC to clients, this keeps their system free of any exchange risk, which is instead taken by the independent exchange providers. DGCs are known as private currency as they are not issued by governments

Digital gold currency

Digital gold currency (or DGC) is a form of electronic money based on ounces of gold. It is a kind of representative money, like a US paper gold certificate at the time (prior to 1933) that these were exchangeable for gold on demand. The typical unit of account for such currency is the gold gram or the troy ounce, although other units such as the gold dinar are sometimes used. DGCs are backed by gold through unallocated or allocated gold storage.
Digital gold currencies are issued by a number of companies, each of which provides a system that enables users to pay each other in units that hold the same value as gold bullion. These competing providers issue independent currency, which normally carries the same name as their company. In terms of the most popular providers, e-gold has the greatest number of users and GoldMoney holds the greatest quantity of bullion (as of January 2007).
As of April 2008, DGC providers held in excess of 9.6 metric tonnes of gold as disclosed reserves, which is worth approximately $280 million, which is a 47% increase since January 2007.

Dollar hegemony

The term describes a geopolitical phenomenon of the 1990s in which the U.S. dollar, a fiat currency, became the primary reserve currency internationally. Three developments allowed dollar hegemony to emerge over a span of two decades. The Bretton Woods regime established in 1945 a fixed exchange rate regime based on a gold-backed dollar.
The US did not view cross-border flow of funds necessary or desirable for promoting trade or economic development.
In 1971, President Richard Nixon abandoned the Bretton Woods regime and suspended the dollar's peg to gold as U.S. fiscal deficits from overseas spending caused a massive drain in U.S. gold holdings.
• The second development was the denomination of oil in dollars after the 1973 Middle East oil crisis.
• The third development was the emergence of deregulated global financial markets after the Cold War that made cross-border flow of funds routine.
A general relaxation of capital and foreign exchange control in the context of free-floating exchange rates made speculative attacks on the exchange rates of currencies a regular occurrence. These three developments permitted the emergence of dollar hegemony in the 1990s.
• All central banks have since been forced to hold more dollar reserves than they otherwise need to ward off sudden speculative attacks on their currencies in financial markets.
Mr Liu argues that thus "dollar hegemony" prevents the exporting nations from spending domestically the dollars they earn from the U.S. trade deficit and forces them to finance the U.S. capital account surplus, thus shipping real wealth to the U.S. in exchange for the privilege of financing U.S. debt to further develop the U.S. economy.
It should be noted that most of the above paragraph describes a controversial point of view. However, at the end of the 20th century it was for the most part undisputed that the US dollar is the most important reserve currency in the world. As of 2007, it still has the largest share (65.7%) of foreign reserve holdings, with the euro some distance behind at 25.2%.[1] However since 2000, the dollar share is falling and the euro share is rising, though the trend is very gentle.

World Currency Unit

World Currency Unit (WCU) is an indexed unit of account (unit of account) that stands for a unit of real global purchasing power. Proposed by Lok Sang Ho of Lingnan University, Hong Kong, it was first intended to be the basis for denominating global bonds, a debt instrument that is issued globally and subscribable by people and institutions around the world. Since each unit by design represents a stable unit of purchasing power, the stipulated interest rate on WCU-denominated bonds represents a real interest rate. In principle, the common denomination of bonds by issuers from different parts of the world using the WCU, as well as the greater transparency of real interest rates, will produce more efficient capital markets, as savers and borrowers around the world converge in their understanding of what each basis point of interest means and are protected against two key sources of uncertainty, namely inflation and exchange loss risks.
Irving Fisher in his 1911 book The Purchasing Power of Money had advised that, to serve as a unit of account, a trusted medium of exchange, and a reliable store of value, the purchasing power of money should be stable. Unfortunately, substances that exist by the bounty of nature, such as gold or silver, cannot have such property since their values fluctuate with changing supply and demand. This is the main motivation behind indexed units of account, of which Robert Shiller of Yale University is a principal proponent.
To be meaningful in terms of stable global purchasing power, a WCU will have to represent a basket of global output. By definition, according to the initial proposal by Ho, the WCU represents the sum of the gross domestic products of key market economies in the world, namely the USA, the Eurozone and UK, Japan, Canada, and Australia. Addition of these GDPs, each in a separate currency, is done by converting all GDPs into US dollar values in the base year.
The sum of these GDPs are then scaled down to equal $100 in the base year. The scaling factor then becomes part of the definition of the WCU, as it defines the size of the GDP basket. It is envisaged that every 5 or 10 years, the WCU can be rebased, with the new series using a new base year spliced to the old series much like consumer price indices with different base years are spliced to form a continuous series.
The nominal value of this unit would rise with inflation in each economy. Moreover, the nominal value of this unit would rise if other currencies represented in the basket appreciate against the US dollar. Savers purchasing such bonds would not only enjoy protection against inflation, but would benefit from the diversification of exchange risks.
The WCU could be used for the pricing of commodities such as oil, precious metals, and agricultural products, which are typically quoted in US dollars. Of course, historical prices of commodities quoted in US dollars could also be converted into prices in WCUs to provide indications on trends in the real prices of these commodities.
Since March 15 2008 a WCU website has been created and provides daily quotations. Readers can access the following website

Economic difficulties

Some economists argue that a single world currency is unnecessary, because the U.S. dollar already provides many of the benefits of a world currency while avoiding some of the costs.[5]
If the world does not form an optimum currency area, then it would be economically inefficient for the world to share one currency.
A further argument is most easily conveyed by an analogy. Water carried in a biscuit baking pan will rapidly flow from high points to the lowest point, causing a sudden uncontrollable imbalance that forces the high points higher and the low point lower. The same quantity of water in cups on the biscuit pan will have no such inherent instability. Hegemonic currencies, free of regional limitations, flow rapidly away from high risk areas exacerbating their problems disproportionately to original causes[citation needed]. Such events are very damaging to the prosperity of the affected area. See for example the events leading up to, and subsequence consequences of, the Corralito in Argentina. For those with the power to do so, predicting, or even causing, such capital flights can lead to immensely profitable speculations; so profitable indeed that their likelihood of occurrence increases in proportion with the scale of the currency involved

The euro and the United States dollar

Worldwide use of the euro and the U.S. dollar United States External adopters of the US dollar Currencies pegged to the US dollar Currencies pegged to the US dollar w/ narrow band Eurozone External adopters of the euro Currencies pegged to the euro Currencies pegged to the euro w/ narrow band
Since the mid-20th century, the de facto world currency has been the United States dollar. According to Robert Gilpin in Global Political Economy: Understanding the International Economic Order (2001): "Somewhere between 40 and 60 percent of international financial transactions are denominated in dollars. For decades the dollar has also been the world's principal reserve currency; in 1996, the dollar accounted for approximately two-thirds of the world's foreign exchange reserves" (255).
Many of the world's currencies are pegged against the dollar. Some countries, such as Ecuador, El Salvador, and Panama, have gone even further and eliminated their own currency (see dollarization) in favour of the United States dollar. The dollar continues to dominate global currency reserves, with 63.9% held in dollars, as compared to 26.5% held in euros (see Reserve Currency).
Since 1999, the dollar's dominance has begun to be eroded by the euro, which represents a larger size economy, and has the prospect of more countries adopting the euro as their national currency. The euro inherited the status of a major reserve currency from the German Mark (DM), and since then its contribution to official reserves has risen as banks seek to diversify their reserves and trade in the eurozone continues to expand.[1]
As with the dollar, quite a few of the world's currencies are pegged against the euro. They are usually Eastern European currencies like the Estonian kroon and the Bulgarian lev, plus several west African currencies like the Cape Verdean escudo and the CFA franc. Other European countries, while not being EU members, have adopted the euro due to currency unions with member states, or by unilaterally superseding their own currencies: Andorra, Kosovo, Monaco, Montenegro, San Marino, and Vatican City.
As of December 2006, the euro surpassed the dollar in the combined value of cash in circulation. The value of euro notes in circulation has risen to more than €610 billion, equivalent to US$800 billion at the exchange rates at the time (today equivalent to circa US$968 billion).

World currency

In the foreign exchange market and international finance, a world 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.
A world currency is at one extreme of a conceptual spectrum that has local currency at the other extreme.
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

Debate on the tax and critics

Opinions are divided between anti-globalizationists who applaud that the Tobin tax could protect countries from spillovers of financial crises, and pro-globalizationists who stress that the tax would also constrain globalization and dry up world liquidity.
Unexpected, though qualified, support for the Tobin tax has come from the multi-billionaire speculator George Soros, who stated that, while the tax goes against his personal interests, he thinks that its introduction could have positive effects on the world economy. However, he advocates a variation to the Tobin tax: Special Drawing Rights or SDRs that the rich countries would pledge for the purpose of providing international assistance.[11]
The "City Notebook" column in the British broadsheet The Guardian, August 30, 2001, put the case against such a tax in straightforward terms. It said that currency speculators are "an exceptionally useful lot, working day-in, day-out, risking their own wealth to supply a thing called liquidity. Without liquidity, markets dry up, prices become volatile and goods become difficult to shift." If a Tobin tax were in place, the editorial continued, that useful work would not be as well accomplished. "The net result is that everyone involved — producer, trader, buyer — becomes poorer, not richer", wrote The Guardian

Tobin tax

A Tobin tax is the suggested tax on all trade of currency across borders. Named after the economist James Tobin, the tax is intended to put a penalty on short-term speculation in currencies. The original tax rate he proposed was 1%, which was subsequently lowered to between 0.1% and 0.25%.
On August 15, 1971, Richard Nixon announced that the US dollar would no longer convert to gold, effectively ending the Bretton Woods system. Tobin suggested a new system for international currency stability, and proposed that such a system include an international charge on foreign-exchange transactions.
The idea lay dormant for more than 20 years and was revived by the advent of the South East Asia economic crisis in the late 1990s. In 1997 Ignacio Ramonet, editor of Le Monde Diplomatique, renewed the debate around the Tobin tax with an editorial titled "Disarming the markets". Ramonet proposed to create an association for the introduction of this tax, which was named ATTAC (Association for the Taxation of financial Transactions for the Aid of Citizens). The tax then became an issue of the antiglobalization or alter-globalization movement and a matter of discussion not only in academic institutions but even in streets and in parliaments in the UK, France, and around the world.

Currencies and Economic News

In the currency market, the dollar was lower against the euro. Late Thursday, the euro was trading at $1.2818 vs. $1.2783 on Wednesday.
The story of the day in the currency market was the crash of the Swiss franc, which fell at least 3% against the euro, pound, and USD. As Dan Norcini wrote on jsmineset.com, “The big stunner of [yesterday] was massive intervention by the Swiss National Bank into the Forex markets which absolutely obliterated the Franc. They caught everyone flatfooted and achieved maximum shock value.
“The Swiss cut their 3 month Libor target by 25 basis points but they also stepped into the bond market and purchased substantial amounts of Swiss franc bonds. That in combination with them buying large amounts of foreign currency is in my view what shoved gold up so sharply today. The strategy of the Swiss is pretty clear – undercut their own currency to remain export competitive especially against the Euro and the US Dollar and provide substantial amounts of liquidity in the process.”
Among the day’s hard data, the Commerce Department said that retail sales dropped 0.1% on a seasonally adjusted basis in February. Hardly something to crow about, but it was a whole lot better than the 0.4% decline expected by economists. January's sales gain was revised up, to a 1.8% growth rate from the 1% increase estimated.
“How about that!” exclaimed economist Jennifer Lee of BMO Capital Markets. But she added that, “Consumers are fighting a good fight, but with such a terrible job market, it is tough to imagine how they can keep it going for long.”
Her skepticism is surely well-founded. The Labor Department reported yesterday that first-time applications for unemployment benefits rose by 9,000 last week to 654,000, up 88% from a year earlier. The number of people collecting jobless benefits also increased, up 193,000 to a record 5.32 million, Labor said.

FOREX-Euro hits 2-mth high vs yen, 2-1/2 week high vs dlr

LONDON, March 13 (Reuters) - The euro jumped to a two-month high against the yen and reached a 2-1/2 week high against the dollar on Friday, helped by solid gains on equity markets.
Gains against the yen were also helped as the market digested the Swiss National Bank's action to weaken the Swiss franc.
European shares jumped 2 percent .FTEU3 and were on course for a fourth consecutive day of gains, following data showing U.S. retail sales fell much less than forecast in February, which also encouraged investors to pull out of the perceived safety of the dollar.

Forex-Dollar trades on rallies and falls in U.S. stocks

NEW YORK, March 13 (Reuters) - The dollar barely clung to gains against the euro in volatile trade on Friday as changing stock market sentiment pushed investors first to buy the greenback as a safe haven, then sell it on higher risk tolerance.
The U.S. currency had earlier erased losses triggered by gains in the stock market following better-than-expected U.S. economic data and signs the U.S. banking sector may be stabilizing.
As stocks came off, the dollar rallied. But as the U.S. session moved closer to the end of the trading day, the dollar again began to struggle.
"The dollar rally here versus the euro is all about stocks. Sentiment has turned in fits and starts," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.
"All that is happening right now is a reality check and investors are asking whether this is really the bottom here. But conviction is really low and that's why we're seeing perpetual setbacks like this," he added.

Forex-Dollar edges down vs euro as US stocks rise

NEW YORK, March 13 (Reuters) - The dollar gave up its gains against the euro on Friday in volatile trade as U.S. stocks closed the week in positive territory, prompting investors to take on more risk.
The U.S. currency had swung between gains and losses for most of the day, following trends in the stock market amid better-than-expected economic data and signs the banking sector may be stabilizing.
"Sentiment has turned in fits and starts," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.
"All that is happening right now is a reality check and investors are asking whether this is really the bottom here. But conviction is really low and that is why we're seeing perpetual setbacks like this," he added.
In late afternoon trading, the euro edged up 0.1 percent against the dollar to $1.2919 . For the week, the single currency rose 1.9 percent, its best weekly gain since the week ended Dec. 21.