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.

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.

We’ve recently been led to believe by critics and advocates alike, that the UK is reaching a point from which it cannot turn back. It must either leave the EU and single market altogether, or it must adopt stricter policies, and give up more control to the Union. Recent developments however, have suggested that this just isn’t the case, and that a third, more moderate path is entirely possible, and entirely likely.

 

A stubborn performance from UK ministers and the Prime Minister has meant that central control has been further put off. There were plans for 17 of the EU member states to dictate financial legislation for the whole group of 27 countries. This was unacceptable to the UK government, who managed to prevent any further progress. The unified banking union is still in the pipeline however, so it will be interesting to see how British ministers deal with its potential.

 

Britain accounts for more than a third of Europe’s wholesale financial market, so the ability to have control over its own finances is of course desirable, and some might argue essential. You can expect Britain to continue pushing for less EU control, though this does not mean that they want a complete separation. 

 

The main opposition for the unified banking system is of course that it would mean the UK’s financial rules would be set by countries not using the same currency. There is a fear that there would be a question of priorities.

 

In October, it was agreed that the European Banking Authority could not discriminate between countries that do and do not use the single currency. There will be separate voting, and both parties must agree before anything can be passed. Again, this is yet another piece of evidence for the fact that the UK will not give any ground to the ECB, but it has no intention of leaving either.

 

What is very interesting is that the UK certainly recognises the need for the EU to remain strong, and it appears as though David Cameron has some support for the idea that those countries using the euro could, to some extent, form a super-state.

 

Recent strengthening in the Eurozone has meant that those trading currency pairs which involve the EUR have seen the currency edge upwards, though Greek problems are still restricting progress. This includes the pound dipping slightly against the euro in the past couple of days.

 

The UK is clearly looking for a more flexible approach to its involvement in Europe. It wants to take part when it is benefited, but remaining separate means that it has better control. There is obvious discontent with the idea from European ministers, but it appears that the UK is currently in the driving seat. It has no desire to either leave or submit to more control, and there is very little anyone else can do about it. Cameron has conceded however, that the decision will ultimately lie with the British public.