Markets Depend on the Dollar

The idea of a reserve currency is centuries old. After the Second World War the US dollar was placed at the center of the international banking system by the Bretton Woods agreement. Interbank forex brokers calculated transactions against the US dollar and under the Bretton Woods system dollars could be exchanged for gold at a fixed rate. In the 70’s the system came undone but the US dollar remained as the world’

s reserve currency due to a lack of competitor currencies. Interbank forex markets have long depended on the dollar.

UN Panel to Recommend Replacement of the Dollar

Fast forward to 2009 and the dollar is in real trouble. Many countries are suggesting that the dollar be replaced by a basket of currencies that would become reserve currencies. Many interbank forex brokers took note of an announcement by a United Nations panel that will recommend that the  dollar be replaced as the world’

s reserve currency. Avinash Persaud, a member of the panel and a currency specialist has suggested the creation of something similar to the old European Currency Unit. Persaud stated, “It is a good moment to move to a shared reserve currency.”

China and Russia Desire New Reserve Currency

A move of this magnitude is bound to affect interbank forex markets and cause uncertainty among investors. Many countries desire a change from the dollar including China and Russia. Persaud believes that the Chinese Yuan will replace the dollar as a reserve currency within decades. Interbank forex brokers took note of the fact that last week the greenback was well on its way to the worst week in 24 years. Interbank forex traders blamed the decline on new Fed policies and rising risk sentiment.

This issue is bound to be discussed at the upcoming G20 summit in early April. Interbank forex brokers will be watching the summit with rapt attention. If the dollar is dumped it could be a whole new ball game in interbank forex markets.

Quick Forex Tip: Interbank FX traders are at the top tier of the global forex market. A majority of all daily transactions in forex markets are conducted by traders from ten large banks. Despite market manipulation by central banks many economists have cited forex markets as closest to the ideal of perfect competition - meaning that no market participant is large enough to set currency prices. As a result, forex trading has become popular with smaller investors because forex markets offer investors the opportunity to profit during troubled times , allowing them to offset losses in other markets.