Harnessing the global foreign currency market: Proposal for a foreign currency exchange (FXE)

Abstract

Abstract The global foreign exchange market, with a turnover of over $1 trillion daily, is the world's largest and most liquid financial market. It has certain inefficiencies, however, being actually a two‐tier market ‐ a competitive interbank market and a publicly quoted captive market of end users. Creating a foreign currency exchange (EXE), to serve the foreign currency market as national bourses serve securities markets, could abolish these inefficiencies. It could promote order, transparency and increased competition, lower transaction costs, and be justified by the fact that transnational activities such as foreign exchange trading use the global commons and depend on global governance. From user fees lower than the premiums consumers now pay when changing currencies with banks ‐ at present their only recourse ‐ FXE could realize vast revenues, which could be used for peacekeeping, development and other functions of the international public sector.