Back to a fixed exchange rate in the future ?
I was just wondering if this could happen as President Sarkozy said he wished a new Bretton Woods (a couple days ago in Davos). Thus he said the international monetary system reform will be discussed in next G20 and G8 in 2011.
So do you think it’s possible to leave the floating exchange rate to go back to a fixed one or something similar ? (Sarkozy blamed speculation in floating currencies that would lead to instability)
I hope it won’t be, otherwise it would mean the end of forex is close !!
(sorry, i know this subject is a bit less simplistic than that!)
Nope, he’s just waffling. It won’t ever happen.
As long as there are individual, sovereign nations, each with its own national currency, there will not be a return to a system of fixed exchange rates, in my opinion.
The Bretton Woods Agreement of 1944 pegged the currencies of the 44 Allied Nations to the U.S. dollar, which became the official reserve currency of those nations. The U.S. dollar, in turn, was pegged to gold at the rate of $35 per troy ounce.
[B]This system of fixed exchange rates worked ONLY because it was based on a gold standard.[/B]
When the U.S. renounced the gold standard in 1971, the Bretton Woods system collapsed, and the world began to move toward today’s system of floating exchange rates. The world’s currencies will never again be pegged to gold; and, therefore, a system of fixed exchange rates will not re-emerge.
At some point, individual, sovereign nations will be absorbed into a world government, which will then require the use of a single world currency. If and when that comes about, individual currencies, currency exchange rates, and the forex market will all cease to exist.
The USA hasnt accepted the metric system yet - I dont think they will push for a world currency anytime soon.
I think the chances of that happening are about 0.0000001%
I used to worry about FX ceasing to exist someday, but then I realized that while FX is an amazing market to trade, there are other markets out there that can be traded just as well. Learning how to trade properly gives you skills all across the financial markets 
[B]“there are other markets out there that can be traded just as well”[/B]
But the forex is a way better than others markets for day trading. In stock markets or CFD, transaction costs are too high.
Eventually, futures could be an alternative, but it seems more difficult (maybe because there is less liquidity)
Not quite low, maybe 0.00000015%.
looooool !!!
This is an article from the financial Times. We learn that banking bonuses will probably no longer dominate the debates but instead exchange rates volatility.
I do not know what they are planing to lower volatility, but as a day trader I fear about that. They could create a semi-fixed system (with a range of cotations acceptable) or ohters things, not necesseraly a fully fixed exchange rate system. If their goal is to shut down volatility in forex (shown as a cause of economic instability by Sarkozy applauded in davos) , this market would be in danger.
For me there are two dangers bigger than CFTC regulatory: the eventuality of a next Tobin tax and the monetary system reform in next years. Maybe i am wrong , maybe it’s just a populist politician debate
"Calls for a new Bretton Woods not so mad
By Gillian Tett in Davos
Published: January 28 2010 13:42 | Last updated: January 28 2010 13:42
Are the French going mad? That is a question that some investors might ask, as the global elite wander – or trudge – through the snow in the Davos ski resort this week.
On Wednesday night, Nicolas Sarkozy, French president, strutted into the Davos limelight by becoming the first French leader to deliver the opening keynote at the event.
EDITOR’S CHOICE
Sarkozy calls for action on currencies - Jan-27
Editorial Comment: Still lost in the old Bretton Woods - Dec-27
Insight: Getting the show on the road - Aug-18
More columns by Gillian Tett - May-28
And, as one might expect, the speech was an odd blend of lofty, arresting rhetoric, unexpectedly geeky comments about global accounting standards and capital treatment of securitised products (which Mr Sarkozy apparently thinks leaves French banks at a disadvantage).
But perhaps the most arresting “soundbite” was a call for a resurrection of the Bretton Woods global currency accord. “The prosperity of the postwar era owed much to Bretton Woods … we need a new Bretton Woods,” Mr Sarkozy declared, in a speech that prompted a large part of the Davos audience to rise to their feet with wild applause. “We cannot preach free trade and also tolerate monetary dumping.”
Now, cynics with long memories might point out that the French have often muttered this kind of thing before (and Mr Sarkozy himself has used the “Bretton Woods” tag on several occasions in recent months). And the fact that he unveiled this in Davos says as much about France’s determination to shape the global intellectual debate, at a time when America is looking increasingly confused, as any plans to start a clear policy initiative.
However, there are two reasons why it might be foolish to completely ignore what Mr Sarkozy has said. First, the French will assume the presidency of the Group of 20 next year, and officials in Paris seem pretty determined to use this as a platform to advance this “Bretton Woods” debate. Indeed, some tangible proposals are apparently already being furtively discussed.
Second, in recent months all manner of ideas that seemed old-fashioned in the mid noughties – if not barking mad – have staged a comeback, as politicians flounder to stem the rising tide of voter anger. Just think of the Tobin tax, Keynesian economics or Glass-Steagall reforms. Or take note of how Paul Volcker was resurrected last week as a policy force. Back to the future, in other words, is now all the rage, after a year in which cyber-finance has become wildly unpopular.
And the point about using the “Bretton Woods” tag is that it taps into a current groundswell of geopolitical angst, in much the same way that all those “old-fashioned” banking ideas do. For the issue of exchange rates has repeatedly cropped up in the debates at Davos this week, suggesting that it is now one of the key “worry points” for many Davos delegates, as they assess future financial risks.
This does not really reflect what has happened during the past year. After all, by many measures the foreign exchange markets have actually been surprisingly quiet in recent months, given the sheer magnitude of the financial crisis. Instead, the key issue now is the next year.
After all, there are mounting pressures besetting the eurozone – just look at the fiscal headaches in Greece, while the global imbalances that plague the China-US relationship also remain firmly in place, even after the financial crisis.
Most important of all, when central banks start implementing exit strategies, there is the potential to deliver a whole new range of currency upheaval, particularly in relation to the crucial, but oft-ignored, issue of the dollar carry trade.
“To me, the big risk this year is the dollar carry trade,” confesses Zhu Min, deputy governor of the People’s Bank of China. “It is a massive issue – estimates are that it is $1,500bn – which is much bigger than Japan’s carry trade.”
He added that in the past year numerous investors are thought to have used the ultra-cheap dollar funding on offer to pour money into emerging markets. Thus, when the US starts tightening, there could be huge “volatility”, with some unpredictable consequences.
Now, that does not necessarily mean that a call for Bretton Woods is a good idea, or that the French really have much chance of ever implementing it. After all, the G20 has found it extraordinarily hard to produce much in the way of co-ordinated action over the last year. And the Chinese themselves remain implacable, opposed to anything which could force a stronger renminbi, even under the guise of a Bretton Woods.
But the key point that investors should note is that Mr Sarkozy has probably smelt the wind: the issue of currency volatility is now hovering around the political agenda.
Or, to put it another way, by the time that Davos delegates meet in 2011, I rather suspect that it will probably no longer be banking bonuses or credit markets that are dominating the debate; instead, the next big bogeyman may be exchange rates.
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In the arena of pomp and bombast, I will bet on the French over the Chinese every time.
In the arena of world economic policy, I will bet on the Chinese over the pompous, bombastic French, every time.
Well the funny thing is that france doesn’t even have their own currency anymore, they are just a piece of the Euro, and who says all the other member countries even agree with him? Think how arrogant that must seem to them :rolleyes:
Forex forever!
It won’t happen in the near future unless UN start talks with a single currency for the whole world hehe
So long as there are people, there will be a market.
I’ve thought of what would happen if such a thing were to occur. I guess the most natural thing for currency traders to do in such a case would be to trade interest rate futures, like gov’t fixed income, Eurodollar, etc. Besides, if a Bretton Woods situation were to occur, not every country by and far would adopt it, so that means those currency pairs would likely see speculative volume move in and make them tradable. So unless we have real hardcore socialism-communism here, I don’t see how it would be possible not to have the ability to trade something.