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Competition Among Global Currencies

Competition Among Global Currencies. Alex Kondonassis, University of Oklahoma A. G. Malliaris, Loyola University Chicago Chris Pavaskevopoulos, York University. THE ATHENIAN POLICY FORUM Eighth Biennial Conference University of Waterloo June 15 – 17, 2006. OUTLINE.

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Competition Among Global Currencies

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  1. Competition Among Global Currencies Alex Kondonassis, University of Oklahoma A. G. Malliaris, Loyola University Chicago Chris Pavaskevopoulos, York University THE ATHENIAN POLICY FORUM Eighth Biennial Conference University of Waterloo June 15 – 17, 2006

  2. OUTLINE • Brief Evaluation of the Current Global Monetary System • Discussion of its Successes and Weaknesses • Role of Financial and Real Factors • Possible Future Scenarios

  3. EVALUATION OF THE GLOBAL MONETARY SYSTEM • Emphasis on Flexible Exchange Rates • Emphasis on Independent Monetary Policies • Promotion of Financial Integration and Capital Mobility

  4. LESSONS LEARNED • Global Financial Instabilities • Role of IMF • Search for a NEW Financial Architecture

  5. WHERE ARE WE NOW? • U.S. Economy and the Dollar • EU and the Euro • Japan, China, India and Other Economies • NAFTA

  6. GLOBAL MONETARY SYSTEM • Role of Major Currencies • Dollar, Euro, Yen • Other

  7. JAPANESE YEN Source: www.barchart.com

  8. EURO Source: www.barchart.com

  9. BRITISH POUND Source: www.barchart.com

  10. SWISS FRANC Source: www.barchart.com

  11. RENMINBI

  12. DETERMINANTS OF CURRENCY IMPORTANCE • Size of the Economy : GDP/ Population • Size of Financial Markets : Equity, Bonds, Real Estate • Depth of Foreign Currency Markets: FX Turnover • Economic Fundamentals: Growth, Employment, Inflation

  13. EU, US and JAPAN Source: www.worldbank.com

  14. Key Potential Economic PartnersYear 2004 Source: www.worldbank.com

  15. Reserve Currency Holdingsoriginal IMF data 1977-2002 data, updated IMF Internal data

  16. Reserves held by central banks as shares of total – major currencies(revised IMF data spliced into old data after 1979) 5/2/05 Source: Frankel(2005)

  17. ADVANTAGES TO A COUNTRY OF HAVING ITS CURRENCY PLAY A LARGE ROLE IN THE WORLD • Convenience for its residents • Business for its banks & other financial institutions • Seignorage more broadly as the willingness of private investors to hold $-denominated assets: America’s “exorbitant privilege” • Political power and prestige

  18. FUTURE SCENARIOS • Dollar weakens & Euro strengthens • Dollar + Pound • Dollar + Pound + Australian Dollar • Dollar and NAFTA and Japan

  19. Disciplined Decline in the Dollar andAppreciation of the Euro at 10% annual rate

  20. 0 Euro and UK entry vs. US and PartnersVarious Scenarios

  21. ROLE OF RENMINBI • Review of Past • Possible Scenarios

  22. CONCLUSIONS • Currency volatility is expected to continue • U.S Dollar will be challenged by Euro • Political, Economic and Military Conditions are important

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