How Does Global Competitive Devaluation Benefit the Dollar?

Shrinking dollar

It’s been very obvious in the past few years, that in the shadow of the global crisis, a great many countries have taken an extremely hard stance in regard to the valuation of their currencies. It’s been described as an ‘every man for himself’ type of scenario, where policies introduced by ministers serve only to make the situation worse for everyone. Some countries are benefiting from this however. In particular, many experts believe that the strategy of devaluing currencies across the world has helped the dollar to some extent.

The idea behind devaluation is of course that it helps to boost exports and decrease imports. This should in theory stimulate the economy. The problem is that when a great number of countries do this, trade is impacted very negatively, and ultimately nobody benefits.

The simplest way in which countries can devalue their currency is to sell it off. South Korea recently bought $1 billion in foreign currencies in order to halt the rapid increase in the won’s value. Switzerland has also recently made sure that the franc tracks the euro at 1.20 in a bid to keep exports strong. This is of course a lot easier than attempting to raise value, which requires the sale of held foreign currencies or bank borrowing.

One very obvious statistic that reveals just how prevalent devaluation is, is that according to the IMF, the total amount of foreign reserves held in the world’s central banks has grown by almost $4 trillion since 2007.

Competitive devaluation is limited in terms of the length of time it will be effective for. This can clearly be seen with Japan, who have recently struggled to keep the yen from rocketing. As the measures have failed to provide a long term solution, some Japanese ministers, including the Prime Minister, have accused the US and Eurozone regulators of exasperating the situation by lowering their own interest rates. The US argues that its aim is simply to boost the economy, and that devaluation of the dollar is not desirable.

All of the devaluation attempts create opposition between currencies, and each will react accordingly, with everyone losing out. The issue however is that the dollar dominates world markets to such an extent that it is very difficult to devalue competitively. There are too many market players.

So how does all of this benefit the dollar? Unpredictable and widespread devaluation can potentially make investors of all scales nervous. With the dollar the currency most resistant to devaluation, it becomes somewhat of a haven. This trend should continue for a while yet, with no real competition coming from the currency of emerging countries such as China and Brazil. Your forex trading account is unlikely to offer the CNY or BRL, simply because the Chinese market is too strictly regulated, and Brazil’s currency is nowhere near stable enough. As long as the rest of the world continues to competitively devalue currencies, the dollar should remain dominant.

 

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Dutch Minister Dijsselbloem Elected New Eurogroup Head; Signals Long Term Policy Making

Jean-Claude Juncker

Jean-Claude Juncker has been replaced as head of the Eurogroup by Dutch finance minister Jeroen Dijsselbloem as we see increasing sings of a European recovery effort; though crisis management isn't his main focus.

Dijsselbloem, aged 46, has been the Netherlands' Finance Minister for two months prior to taking up the role as the head of the informal association of the 17 single currency ministers. He will continue his role within the Dutch government, and is expected to hold the position of Eurogroup head for a period of 30 months.

His appointment will not come as a surprise, as he was widely supported as a candidate, not least because the Netherlands is one of the few European countries to have maintained its high credit rating throughout the Eurozone crisis. A German source did however reveal that Spain had opposed Dijsselbloem's appointment, likely due to his known tough stance on spending.

Wolfgang Schaeuble, Germany's Finance Record has been a clear advocate of Dijsselbloem's leadership for quite some time, though the French finance Minister Pierre Moscovici has made it clear that Juncker will be a tough act to follow, having maintained an excellent level of equality between Eurozone members. In particular, Moscovici highlighted the need to ensure the views of France and Germany remain balanced.

The Netherlands, France and Germany have all taken a hard line in respect to the austerity measures imposed on struggling economies such as in Greece, Portugal and Ireland. 

Some may argue that Dijsselbloem's task is somewhat easier than Juncker's was six months ago, when there were prospects of Spanish and Italian bailouts, and of course the worry of Greece leaving the Euro. The Dutchman is however, focusing his efforts on the mid to long term rather than assuming the role of crisis resolver. His main goal is to ensure that Europe remains competitive in light of emerging economies elsewhere. Primarily, he wants to do this through growth, better fiscal discipline, and by cutting the levels of unemployment, especially among the young.

Dijsselbloem's appointment seems to have had relatively little impact upon the forex market, as the Euro is being overshadowed by the current European Stability Mechanism talks, including the issue of financial transaction taxes. Cyprus asked for a bailout in the summer, but this hasn't yet happened, and some ministers are questioning whether it should happen at all. According to CMC Markets, it is believed that Greece has secured another instalment of aid, and that there will be an agreement to implement a plan for tax on financial transactions.

It seems as though Dijsselbloem's leadership heralds a slightly new direction for the Eurozone finance ministers. The single currency certainly isn't out of the woods yet, but there are signs that policy is being developed that goes beyond the current crisis. With many European economies on the mend, it's time to turn the attention to the future of the single currency, and how it will remain competetive.

 

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Spotting A Fake Regulator

Fake Regulators

Scammers may try to win your trust by saying they are regulated by an organization that sounds legitimate. If they mention a 'fake regulator' featured on the list below, you know the offer is a scam.

The international organizations listed below are fake entities and no genuine government regulators exist under these names. Do not deal with them.

American Futures and Options Exchange
American Futures and Options Trading Commission (AFOTC)
Bureau of Foreign Security Affairs
Commodities Futures Trading Commission - www.cftc.org.au
(Please note that this fake regulator should not be confused with the legitimate US regulator, the Commodity Futures Trading Commission which is http://www.cftc.gov/)
Duetsche Anstalt für Finanzdienstleistungsaufsicht (DAFIN) - www.dafin.org
Financial Services Regulatory Authority of Frankfurt (FSRAF) - www.fsraf.org
Foreign Shareholders Protection Department
Forensic Financial Fraud Investigators
Frankfurt Financial Supervisory Authority - www.ffsauthority.com
Hong Kong Financial Services Authority
Hong Kong Financial Trading Authority (HKFTA)
Hong Kong Futures and Options Exchange (HKFOX)
International Association of Transfer Agents
International Compliance Commission
International Equity Commission
International Exchange Regulatory Commission
International Organization of Securities Commission - www.iosc-us.com
International Regulatory Commission
International Securities Tax Commission
International Shareholder Agency
Japan Futures Trading Fund (JFTB) - www.jftb.org/eng/
Japan Options and Futures Trading Board - www.joftb.org
National Mergers and Acquisitions Board
National Shareholder Protection Agency
Offshore Commodity Futures Dealers Association (OCFDA)
Offshore Futures Securities Association
Offshore Investors Protection Association
Options and Futures Trade Commission
Regulatory Association Of Offshore Investment Managers
Regulatory Compliance Commission
Securities Regulatory and Investment Board
Sicfex Swiss International Commodities Futures Exchange
Swiss Commodities Futures Exchange
Thompson Brennan Stanley
Transfer Exchange Corporation
US Securities Investigative Committee
US Stock Regulators
World Options Exchange - www.woptex.com
Worldwide Securities Investment Comission - www.asic-capital.com

Our list of International Regulatory Authorities is genuine and we check it on a regular basis to ensure that it is kept up to date.

 

 

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ASIC List of Unlicensed Companies

Australian Securities and Investments Commission (ASIC)

The Australian Securities and Investments Commission (ASIC) is the financial regulatory authority of Australia. If you are thinking about trading with a Forex broker based in Australia then check ASIC's Australian Financial Services licensee register to ensure that the company holds an Australian Financial Services license (AFSL).

You can also check ASIC's List of Unlicensed Companies to identify companies ASIC has already black listed.  This list is similar to FINMA's Black List and FSA's List of Unauthorized Firms.

Protect yourself. 

 

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TPFX Fined $4.8 Million in Forex Fraud

CFTC

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that a federal court entered an order of default judgment and permanent injunction against Total Call Group, Inc. (aka TPFX, Inc., Power Play FX) of Frisco, Texas, and its principals, Craig B. Poe, also of Frisco, and Thomas Patrick Thurmond (aka Patrick Thurmond) of San Antonio, Texas.

The court’s order requires Poe and Thurmond, respectively, to pay a civil monetary penalty of $3.24 million and $1.62 million and holds Total Call Group jointly and severally liable for the payment of these amounts.

The CFTC complaint, filed in the U.S. District Court for the Eastern District of Texas on September 29, 2010, alleges that, beginning in at least early 2006 and continuing until October 2008, the defendants solicited approximately $808,000 from at least four customers for the purpose of trading off-exchange forex contracts. As alleged, the defendants deposited and/or pooled approximately $800,000 of these funds into three forex trading accounts held at Forex Capital Markets LLC (FXCM), a registered futures commission merchant (FCM). In soliciting the funds, Thurmond allegedly made false representations to one or more of Total Call Group’s customers, including that Poe had been trading forex and living off the income for more than four years and that he and Poe had personally provided more than $1 million to Total Call Group for the purpose of trading forex.

At the end of August 2008 the defendants sustained trading losses and incurred FCM fees totaling approximately 90 percent of the balance in the forex trading accounts. However, the defendants did not report these substantial losses to customers. Rather, the defendants continued to promote the profitability of trading, solicited additional customer funds and lost almost all of the remaining funds by November 2008.

From September through December 2008, Poe willfully made and sent false reports and statements to customers that overstated profits and/or failed to disclose trading losses and falsely reported customers’ account balances. Poe sent several of the false statements to customers after the trading accounts were fully liquidated on November 13, 2008.

Read the full release at CFTC
 

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