Analyzing Hypothetical Cases: The “One World Currency” Proposal and Its Effect on Trading

There are certainly thousands of things that could happen in the world which could irreversibly and definitely affect the way in which we trade the market. From natural disasters to the collapse of economic zones (such as the European Union), there are tons of events that could trigger fundamental changes in the ways in which the markets interact. On this new series of post (which may come up once every few months) I will give you my opinions and insights on some of the potential effects I think certain of these specific events might have in the way in which we trade and particularly in the way in which we trade the forex market. On today’s post I will address a scenario which would imply the creation of a “single world currency”. This is something that many forex traders fear (no exchange rates means no dual currency services which means no Forex) and which is certainly possible in the long term as within an equally developed globalized economy the idea of separate exchange rates simply makes absolutely no sense as it adds to trading costs without adding any intrinsic value to what is being traded.

The idea is not new and it has been around for quite a while, doing a google search of “single world currency” will give you at least a few hundred results where you can read the arguments for and against this idea and the possible economic consequences this might bring. However what concerns us is the effect that having a single world currency would have on trading in general and how it would affect what we currently know as foreign exchange trading. Since the markets depend on the instruments being traded to work in a certain way, the removal of a large amount of traded instruments would imply drastic changes within the market.

Obviously the end result of a “one world currency”  – as I have mentioned before – is the total elimination of what we currently perceive as forex since there will simply be no forex instruments to be traded and nothing to exchange within a foreign exchange (since there is currently nothing “foreign” to the whole world). In the beginning this will effectively cause  a “mass extinction” of forex traders as those who cannot “adapt” to the changes in the market will have to perish. Potentially everyone who is very closely restricted to foreign exchange instruments will have a very hard time trading since the knowledge they had accumulated for a long time (perhaps even decades) might now be useless.

However, after the first world currency is implemented there will be some price parity differences between countries which will resemble the “exchange rates” we previously traded within the foreign exchange. For example a ton of wood in Canada might be worth X dollars while it might be worth 1.2 times that amount in Australia. That difference in the price of commodities across the world may potentially lead to the creation of synthetic instruments between futures markets in order to make the market efficient. So you would not speculate about the EUR/USD but about the price parity fluctuations of commodities between countries.

If there is any significant lack of equality in the world – which will always be there due to political and climatic reasons – it will certainly be possible to trade on this instruments successfully as you would on the foreign exchange. Certainly many problems would arise (since there is no historical data) but after the first few years algorithmic systems could probably be developed and after 10-20 years it is very probable that these instruments would become the new “work material” for previous forex traders.

A much deeper scenario involves a place where equality has reached a maximum point and the price of wood here is the same as the price of wood in any other place. Although such a phenomena is not likely to happen due to the differences in commodity source locations, transportation costs, etc, it might be possible if a very abundant and cheap energy source is created (think fusion ?) with advances in technology allowing for the almost cost-less automation of all processes. In this case we might not have different prices of commodities in different places but a “world futures market” where all commodities would be traded against the single world currency.

However trading will still survive in this case as the global futures market and the single world currency will still allow for the generation of trading instruments not unlike those traded in futures exchanges all around the world. It is also tremendously unlikely that price parity would become absolutely universal and certainly some local exchanges may still exist with separate prices that would allow for the creation of “global futures vs local futures” exchange rates which may also be regarded as price-parity-type instruments.

To sum it up, although it is obvious that the introduction of a world currency would eliminate the foreign exchange as we know it, it would require absolute purchasing price parity all around the world to completely eliminate all instruments that can be traded like national currencies. Whether all currencies disappear is irrelevant as the relative value of things between different countries – which is what generates different currencies to begin with – will spark the generation of additional instruments which may be traded just as forex instruments are traded today. However it is true that such a change would obviously be dramatic and being able to adapt and develop systems to trade these new instruments might be vital for the survival of forex traders.

However if we do arrive at the point where purchasing price parity is exactly the same everywhere and there is no way to generate instrument analogous to those present in the foreign exchange today then the world will most likely be a very peaceful and equal place where all people have the same rights and resources, something worth losing forex trading to :o). If you would like to learn more about my work in forex trading and how you too can design your own systems with sound trading tactics in mind please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach towards automated trading in general . I hope you enjoyed this article ! :o)

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10 Responses to “Analyzing Hypothetical Cases: The “One World Currency” Proposal and Its Effect on Trading”

  1. Bruno says:

    Hi Daniel, great article!

    I’ve often thought about the event of ‘forex market disappearance’ because of the creation of a single world currency, but your post was quite enlightening!

    I never thought about those ‘synthetic instruments’ that might be needed to replace currencies, interesting…It’s always great to have a new perspective :)

    Cheers

    • admin says:

      Hello Bruno,

      Thank you for your comment :o) I am glad you liked the article ! Indeed, even if a world currency becomes available there will obviously be differences in local prices which will lead to this type of synthetic instruments or at least that is what I believe would be the case. Anyway, I think there will be plenty of forex to trade (at least during our life times !). Thank you very much again for your comment,

      Best Regards,

      Daniel

  2. Gabor says:

    Hi Daniel,

    Well, I would be happy if not a world currency but the EU’s common currency would be viable in the long run. :)
    I think that even if technical resources hypothetically might be distributed equally (which I doubt), cultural differences hardly will disappear among different regions of the world. And this fact by itself determines differently developing economics and political zones that need their own money. Another problem that who would control the supply of the global money?
    So I’m not afraid of currencies disappearing from the world very soon.

    But I like the idea of this series, I would suggest some topics for future articles:
    – Collapse of Euro
    – USD hyperinflation (an interesting hypothetical description of it: http://gonzalolira.blogspot.com/2010/08/how-hyperinflation-will-happen.html)

    Gabor

    • admin says:

      Hi Gabor,

      Thank you very much for your comment and suggestions :o) Perhaps you are forgetting a few extremely improbable scenarios which may cause resources to becomes equally distributed. For example imagine if during the next 100 years we discovered several alien intelligent races, wouldn’t then the notion of “world currency” to trade with them make more sense ? Wouldn’t the distribution of wealth become very different when we become aware of others in the universe ? I remember a Star Trek movie where captain Picard said that when humans made first contact all wars ended and money ceased to exist since the concept of “richness” stopped making sense. Perhaps an event like this would be the most extreme “black swan”.

      However – back to reality – the other topics you propose (which are much more short-medium term) are also within the realm of what I intend to explore within this series of posts. Definitely a collapse of the Euro (or at least a default of some EU states) and the evaluation of a “hyper inflation crisis” in the US are both two cases very much worth examining. That said, thank you very much again for your comments and for being a faithful reader :o)

      Best Regards,

      Daniel

  3. Hi Daniel-

    Great article and great food for thought as always.

    I don’t think there’s any chance of a single world currency in our lifetimes. The function of currency markets is to provde a method to offset differences which occur in value exchange between 2 economies with different monetary, fiscal and economic performance factors. Just look at the strains caused by the EUR experiment to understand the challenges that would exist to implement a single currency globally.

    I do think there’s a pretty good chance of changes in the composition of the EUR. Specifically, more eastern block countries are added and Germany departs to join a new “Nordics” currency. That will cause changes in the the performance of the currency, but it will happen slowly, and you are more than smart enough to adjust your systems.

    Good to see you watch Star Trek – the Next Generation.

    Take care bud,

    Chris

    • admin says:

      Hi Chris,

      Thank you for your comment :o) I definitely agree with what you’re saying here. Possibly a single currency will not exist within our lifetimes since this would require – as I mentioned – an extremely equalized world in many different aspects (including economic and cultural) and perhaps a much closer scenario – as highlighted by Gabor – might be the splitting of the EU into different zones to include countries with different levels of development. I will write a post about this within the next few months but I believe that this might not be the case for at least the following couple of years. As you say – if this does happen – it will happen very gradually and will most likely not be a shocking “black swan” in the forex market. However you’ll be able to read my whole argumented opinion once I publish that post :o) Thank you very much again for your comment Chris,

      Best Regards,

      Daniel

      PS : Glad you like Star Trek too ! :o)

  4. Maurizio says:

    Dear Daniel, thank you for this interesting article which explores a possible future scenario. Anyway I think that before all the currencies disappear, a more real risk is that macroeconomic factors will change consistently the market we trade. For example, in case of an Euro splitting in a strong currency and another weaker currency, the liquidity and interactions with USD (I take it as example as EURUSD is the most and successful traded pair of our systems) could make the market impredictible based on our previuos simulations, or make the inefficient we exploit now unexploitable. So it will be more and more important to understand the market changings at time, react to them and be ready to exploit new inefficiencies when our systems or some of them will reach the worst case scenario. Anyway, even in the hypothetical limit case of the creation of a unique currency, there will always be something to trade with algorithmic applications. A stock, an index or a raw matter price will always be there. I remember a very interesting article I read in the “What really profit” review (november 2010 issue), concerning a SP500 trading system using two David Varadi’s trending indicators (DVI and DVB), which are available for MT4 and which are also suitable for an authomated trading system. Well, with a very rough optimisation, this strategy gave 700% profit since 2000 with very low drawdown, while buying and holding the SP500 would just have trade at breakeven in the same period. This shows that maybe adding other instruments beside Forex pairs could allow us to diversify even more our portfolios, trading into different markets and not just into differt Forex currencies. What is your opinion? Thank you.
    Ragards.
    Maurizio

    • admin says:

      Hello Maurizio,

      Thank you for your comment :o) I certainly believe that diversification in other markets is a very positive step (besides being better to trade due to the presence of actual central exchanges, order transparency, etc) but the problem here is mainly that the entry level barrier for other markets is very high and possibly every account would need to have at least 25-40K USD to trade and even more if you consider the cost of the APIs we need to algorithmically trade within these markets. So the answer would be that obviously diversifying in other markets is good but something like this will probably not happen in Asirikuy yet because of the higher entry level (because Asirikuy is focused on the small retail trader, who obviously trades forex due to the low entry barrier). However the possibility is now open to the trading of indexes and CFDs on forex brokers who offer them as the EOD data they give us is accurate enough to be used with Coatl (so we could develop systems for these instruments using genetics). I hope this answers your question Maurizio :o)

      Best Regards,

      Daniel

  5. Franco says:

    Hey Daniel,

    Another topic that we should consider is the coming energy (oil) crisis and how that will influence economies and trading.

    Some people speculate it will totally destory our modern world, others say we will find a replacement and go on with our inefficient energy consuming lives… I’m not so sure about the latter since everything about our modern world is based on oil.

  6. Joshua says:

    Hello my name is Joshua I am working on the creation of a secure, ecologically sustainable, resource based, electronic, open source, transparent, interest free, fee free, money system / medium of exchange created by the people, for the people, available to every human on the Earth.

    May peace be with you,
    Joshua

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