Foreign Exchange Continues to Remain US Dollar-Centric – Part 2

June 18th, 2012

World foreign currency has traditionally been dominated by the US dollar as Best Exchange Rates UK covered in part 1 of this article. It is widely felt that the dollars position as the most fluid and widely used foreign currency in the world may begin to change over the course of the next decade, which would have a dramatic impact on the best exchange rates for US dollars. There are 3 main reasons put forward for this by economic, political and financial experts.

The development and diversification of technology has had a huge impact on the world economy. In the past it has been difficult to do a quick foreign currency exchange calculation to work out the value of trading in an alternative currency to the US dollar. In other words it was often used as the import / export currency simply because it was easier to do so and to avoid confusion, almost like speaking a common financial language, because there are barriers to talking in a different language or a different currency.  Following the technological revolution, variations on comparisons in currency can be accessed in real time, wherever we are in the world. There is no need for the world to limit itself anymore and the pattern of change is already beginning to emerge and its calledChinaand it comes in the form of the Yuan. The Euro is another key player that tends to be discounted byAmerica; it has after all hit very hard times of late. It is felt that the Euro is still a strong threat to the US dollar, the European Union is taking steps to address its debt deficit and has the backing of a large euro area that consists of many governments pulling together to form an integrated European bond market, which positions it well in creating an alternative to the US dollar.

While the Euro is a good contender for the US dollar, China is accelerating towards the internationalisation of the Yuan and in 2011 it quadrupled bank deposits, with phenomenal increases in cross border transactions which reduces the requirement for costly foreign exchange transactions and the risks associated with currency exchange. Financial leaders have set 2020 as the deadline for transforming Shanghai into a world class financial centre.

The final reason for the dollars predicted decline in prevalence as the world’s reserve foreign currency surrounds its safe-haven status. At the moment the currency is bought into by banks and investors not only because it is liquid but almost certainly because it is secure. The UShas always had the capacity to honour its commitments. This could be changing as debt approaches 75% of GDP and plummets into the trillions, many investors are left wondering how safe the haven actually is now and rather than throw all of their money into one currency, they will begin to spread the risk to other emerging foreign currency, like the Yuan.