One World Currency

by Larry Levin

The Tin Foil Hat brigade have been warning of a "one world currency" for decades now - or at least it seems that way. Why a country would throw away its sovereign currency rights is beyond me, but the thought isn't so ridiculous now. After all, the Europeans have already done that in their region of the globe. Will the U.S. and the rest of the world follow with something even bigger?

Well, before that ever happens there must be some idea as to which currency would be used as a world currency. Would it be the US dollar? No, that is today's "reserve currency" but not a global currency. Would it be the Yen? No, Japan is bankrupt. The Swiss Franc or the Brazilian Real? Nope. The idea that is being floated, or rather is being used right now, is a basket of currencies but one that is much different than the SDR (special drawing rights) of the IMF.

According to the Financial Times:

“[Overlay Asset Management's] Wealth Preservation Currency Index consists of the currencies of the world’s 15 largest economies, weighted by their gross domestic product, adjusted for purchasing power parity. The PPP element ensures a higher weighting to emerging market currencies than is commonplace in other currency baskets, with the Chinese renminbi (accessed through non-deliverable forward contracts) accounting for 16 per cent, Indian rupee 6 per cent and Brazilian real 4 per cent.

“In contrast the International Monetary Fund’s special drawing rights, the nearest approximation to a global currency, consists purely of a basket of developed world currencies. Overlay says the hedging tool has attracted the interest of sovereign wealth funds, particularly from the Middle East and East Asia, pension funds, insurance companies, wealthy individuals and family offices, while a number of central banks are purportedly keen to use it as a benchmark for their forex reserves…

“…Overlay’s rationale is that investment portfolios are often heavily exposed to the dollar, but many investors have doubts as to whether the greenback can retain its value and remain the world’s primary reserve currency.”

Although this sounds intriguing, it won't work. What politician, especially from the USA, would want to be bound by a "world currency" when it is quite happy to trash its own. QE2 is only a week away.

Previous Day's Trading Room Results:
Trade Date: 10/26/10
E-Mini S&P Trades*
(before fees and commissions):

1) No "Secrets" trades filled today.

2) Algorithm positions (2)

3) “Reading the Tape” positions (5)…combined Secret’s, Algo, & “Reading the Tape” total… +1.75

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