Global Currency Market Research Articles

BRICS as a driving force of changes in the world monetary and financial system aimed at the transition to settlements in national currencies

Aim. To determine the place and development potential of BRICS (interstate association of Brazil, Russia, India, China, South Africa) in the global monetary and financial system.Objectives. To analyze the BRICS contribution to the world economy; to assess the role of the BRICS currencies in the modern monetary and financial system; to identify areas for strengthening the role of the BRICS in the monetary and financial system; to assess the BRICS actions aimed at reducing its dependence on world currencies in favor of national currencies; to characterize the obstacles to integration and strengthening the role of the BRICS.Methods. With the help of general methods of scientific knowledge, graphic and tabular analysis the state at the present stage and the potential of BRICS development in the world economy and monetary and financial system are considered.Results. In the 15 years since the BRICS were established, the contribution to the world economy of the member countries has increased significantly, while their role in the global currency market remains not so significant. At the same time, since its establishment, one of the most important objectives of the BRICS has been to reform the existing global monetary and financial system, via strengthening the role of the association and shifting from global currencies to the national currencies of the member countries.Conclusions. Over the past few years, the BRICS countries have taken a number of measures aimed at de-dollarization, both at the level of individual countries and at the level of the association. In particular, the countries have made no secret of their intention to create a payment system based on digital currencies that is autonomous from the Western financial infrastructure, which would undoubtedly facilitate a faster transition to settlements in national currencies. Despite the difficulties for the monetary and financial integration of the BRICS countries, BRICS has great potential to influence the global monetary and financial system due to its growing economic power and the prompt development of the financial technology sector in recent years.

Constraints on currency market movements – Implications for the RMB exchange rate regime

AbstractThis paper reveals the inherent characteristics behind the statistical phenomena of exchange rate interactions and co‐movements, corroborated empirically by exploring a range of currencies with varied degrees of flexibility. It then studies purposely the historical evolution and development prospects of the RMB exchange rate regime. The RMB exchange rate behaviour and statistical patterns are contrasted with the freely floating currencies in this context. Taking up alternative policy positions, the expected developments in RMB characteristics are deliberated, projecting a trajectory for further RMB regime reforms. How the RMB would fulfil the significant role on the global currency market as signified by its position in the SDR basket is contemplated, beyond a conventional policy shift and under the paradigm that the global currency market tends to be tri‐polar.

Статистичний аналіз та прогнозування складових національного валютного ринку в умовах вторгнення рф в Україну

The article focuses on determining the impact of the consequences of the russian invasion of Ukraine on macroeconomic stability and the exchange rate of the national currency. The relevance of the chosen topic is substantiated. The problems of assessing the negative consequences of the russian invasion of Ukraine are outlined, including: violation of general macroeconomic stability, significant fluctuations in foreign exchange markets and destabilization of the national currency. The study considers the theoretical and methodological foundations of the study of foreign exchange markets and analyzes global trends in the development of the global currency market. The structure of world currency reserves is analyzed according to the assessment of the currency composition of the official currency reserve (COFER) of the IMF. The analysis of the dynamics of average spreads of purchase and sale of reserve currencies against the US dollar for traditional and non-traditional reserve currencies is carried out. As a result of studying world trends, the main factors that affect fluctuations in the exchange rate of currencies are identified. The main problems regarding the functioning of the national currency market in the context of the hostilities in Ukraine are outlined, in particular, the existing inflationary processes are analyzed. The dynamics of currency interventions of the NBU for 2021-2022 is considered. The features (advantages) of the application and the results of using the singular spectral analysis (SSA) method for predicting fluctuations in the US dollar and Euro in the national foreign exchange market are presented. The practical implementation of this method was carried out using the CaterpillarSSA software product. Evaluation of the accuracy of the forecast is performed using the MAPE method. The obtained forecast errors (less than 6%) suggest that the constructed models are adequate and can be used for further research and recommendations. Thus, it can be concluded that for Ukraine the most important factors affecting the exchange rate are seasonality and successful trade policy of the government, which, in turn, largely depends on resource prices. The carried out research allowed to highlight the features and main aspects of the functioning of the foreign exchange market of Ukraine during the period of ongoing military aggression.

Spillover effect of the RMB and Non-USD currencies after the COVID-19 pandemic: Evidence captured from 30-minute high frequency data

Amid the faster- and wider-than-expected spread of COVID-19, which has added new twists to the global economic outlook and profoundly impacted the performance of major currencies around the world, the RMB has been performing well, and thus, its market standing has improved. However, uncertainties about the future pose enormous challenges to the RMB internationalization. By processing 30-min high-frequency data, this paper aims to study changes in the characteristics of the relationship between the RMB and other non-USD currencies at five stages of the pandemic, first by means of auxiliary regression analysis, in which the pandemic is accounted for with a dummy variable, and then with a VAR-BEKK-GARCH model. The research shows that since the latter stages of the global pandemic, significant negative spillover effects among major non-USD currencies can be observed, while the independence of offshore RMB has increased gradually, and there have been weakening trends in the sustainability of the mean spillover and volatility spillover effects among other currencies. As the “regular pandemic prevention and control” begins to take hold in China and the geopolitical uncertainty increasingly outbreaks, the top priority in global currency market should be to resist the pressure of RMB independence with policy changes and increase caution in investing RMB assets.

Liquidity in the global currency market

We study the liquidity of the global currency market by analyzing the price impact of trading volume. We analyze a decade of CLS intraday data representative of global foreign exchange (FX) trading by developing a refinement of the popular Amihud (2002) illiquidity measure that we call realized Amihud, which is the ratio between realized volatility and trading volume. Inversely related to market depth, price impact increases with transaction costs, money market stress, uncertainty, and risk aversion. Furthermore, we analyze whether and how liquidity begets price efficiency by looking at violations of the “triangular” no-arbitrage condition. We find that dollar-based currencies offer a lower trading impact supporting price efficiency.

U.S. Monetary Hegemony after the Collapse of the Bretton Woods System

The Bretton Woods system (1944) founded inextricable monetary connections between the U.S. and many countries around the world, including Canada, Australia, and most Western European countries. It enabled the U.S. to build up its monetary hegemony in the world, possessing great influence on the global currency market. Since there were various limitations that existed in the inherent structure of the system and the U.S.’s inabilities to master the global market, the Bretton Woods System collapsed in less than 30 years. Nevertheless, though the Bretton Woods System ended in 1971, the U.S. did not lose its dollar hegemony and still owned considerable advantages in its monetary supremacy. This paper will provide the context of the Bretton Woods System of monetary management. Significantly, I will explore the reasons that gave rise to the U.S.’s continuous monetary hegemony, the pros and cons of dollar hegemony, and its expected challenges.

Trading with the Informed and Against the Uninformed: Flows and Positioning in the Global Currency Market

Trading with the Informed and Against the Uninformed: Flows and Positioning in the Global Currency Market

Link prediction in the Granger causality network of the global currency market

In this study, we analyze the topology of the global currency market using the Granger causality network and attempt to predict its links by utilizing the real effective exchange rate of 61 countries. In this context, we suggest two new link prediction methods using the eta squared as a weight of link. For the network analysis, we focus on the changes in cross-sectional topology and time-varying properties of the causality network during the sub-prime mortgage crisis, the European debt crisis, and the Chinese stock market turbulence. For the link prediction, we evaluate the prediction performance of the proposed method and those of other benchmarks. Based on the results, we observe significant increments in out-degrees and in-degrees of the originating continents of the global financial crisis. Also, we confirm the best prediction accuracy of the weighted causality method based on the statistical significance of higher area under curve in every aspect.

Review of Chinese Policy Against Cryptocurrency Growth

The development of financial technology arrived at a new form, namely cryptocurrency. The development of cryptocurrency with an increasingly widespread network and its autonomous nature cannot be controlled by the state, which makes China implement policies to block all domestic cryptocurrency activities. The policy becomes unnatural when China occupies the top position in the developing global digital currency market. This anomaly is interesting to study further to find reasons that motivate China to take firm policy when in a safe position as a center of production and global crypto currency transactions. To explain this reason, national interest theory and rational choice are used as the main tools in analyzing this problem. The national interest theory and rational choice explain that the policies taken by China are motivated by economic and security interests, as well as rational calculations of the advantages and disadvantages of those policies

GLOBALIZATION OF INTERNATIONAL FINANCIAL MARKETS

The article deals with one of the components of globalization - the globalization of financial markets. The article considers financial markets, which are the component of globalization. The study investigates the international financial institutions that together form the international financial infrastructure and the main subjects of financial globalization. The study investigates the international financial institutions, which collectively form the international financial infrastructure and main subjects of financial globalization. The segments of the global financial market, which include the global debt market, the global stock market, other global financial markets (precious metals, real estate insurance), the global currency market, are considered. The article considers the segments of the global financial market, such as the global debt market, the global stock market, the global currency market and other global financial markets (precious metals, real estate insurance etc.).
 The article presents the prospects of global financial markets, such as high world standards, higher level of diversification, higher liquidity and professional risk management.
 It is established that the basis of the globalization of the financial system lies in the interaction of such phenomena as: technological progress; growing competition: on the one hand, between lending and financial institutions in the financial markets, and on the other hand, between the financial markets themselves, due to the significant development of information technology and telecommunications; restructuring of credit and financial; wide internationalization of business due to the increasing transnational nature of corporations; consolidation of regional integration associations (in Europe - Economic and Monetary Union); weakening of the firm control over the implementation of international agreements related to the movement of capital stock exchanges; - macroeconomic stabilization and reform in a number of developing and transition countries that have created a favorable climate for foreign investors; widespread use of the "principle of the lever".
 We investigated that the integration of international capital markets, merger of financial institutions, the tendency to increase speculative operations in the financial markets and financial crises are the global trends in the development of international financial markets in the requisition of globalization.
 It is proved that the, the emergence of the global financial space is represented by an increase in international financial flows, volumes of all types of international transactions, an increase in the number of companies and financial groups that operate outside of the national financial systems.

The 2016 U.S. presidential election and the Stock, FX and VIX markets

The U.S. presidential election is one of the global political events that have the profound effects on the Global Financial Markets (GFMs). The aim of the study is to examine Stock, FX and VIX markets under the U.S. presidential election 2016. The findings strongly suggest that ‘U.S. presidential election effects’ hold in equity and FX markets across the GFMs. The empirical outcome signifies that markets are inefficient in the short-run (election year) and allows the opportunity to make abnormal gains from the market. The ‘Republican president elect’ has shown negative effects on the Nifty50, S&PASX200, and IPC equity markets while FTSE100, DJIA, Top40, EuroStoxx50 and Nikkei225 have reported positive returns. The Trumps’ proposal on international trade has caused major loss in the global currency market against the U.S. dollar. The investors’ sentiment to be measured extremely low on the poll announcement day but VXJ and AXVI based market participants have shown very high degree of concern. The Bearish-run election effects to be observed during the election period while post election period has shown Bull-run effects (Asia-pacific markets).

Международные финансовые институты и вызовы многополярности

The world is changing, moving towards multi-polarity. However, despite the explicit shifting of the center of economic gravity from the West to the East, the dominance of the West in establishing the rules of conduct in the global economy and global finance remain virtually immutable. The author argues that the widely-discussed reform of the IMF quota and governance has not led to a significant strengthening of the role of the most dynamically developing emerging economies in the Fund’s decision-making. Regional economic players (such as the BRICS) have been actively involved in the international division of labor. However, the existence of institutional financial monopolies hinders the redistribution of global value added. Armed with the advanced information technologies and financial innovations, the leaders of financial globalization are redirecting scarce global resources in favor of the world-systemic core. The study is based on comparative methods and system analysis and aims to provide a comprehensive view on the way of involvement of global financial institutions in the control of the processes of financial globalization. US dominance in international financial institutions contribute to the further advancement of the global role of dollar as reserve currency of central banks, the currency of international settlements, deposits, loans and investments. It’s shown that the implementation of financial globalization is strongly correlated with the concept of the «center-periphery» model, on which the functioning of the global capital market is dependent. The features of the modern structure of the global currency market are summarized. The article reveals some legal aspects of global governance, in particular the role of the Anglo-American law in the global economy and global finance. It is concluded that for full participation of emerging markets, particularly the BRICS countries, in the processes of globalization, it is necessary to create a parallel financial system, aimed at the development of the real sector of the economy, which would be independent of the rules that have been established within existing system of international financial institutions.

The Currency Carry Trade: Selection Skill or Behavioral Bias

<p>Many attempts have been undertaken to solve the forward premium puzzle with little to no success. The global currency market is considered the most information efficient and transparent of all financial markets since it demonstrates a balance between over and under-reaction to information with remarkable consistency. The Efficient Market Hypothesis espouses investors cannot systematically outperform a benchmark since all investors have access to the same information. Therefore, the expected long-term rate of return for currencies is essentially zero. The Arbitrage Pricing Theory asserts investment returns are random. As such, traders cannot avail themselves of mispriced currencies. The assertion of Uncovered Interest Rate Parity is that bi-national interest rate variance is equal to the expected differential in exchange rates. This paper asks the following questions: does alpha persistence exist in currency carry trade funds or are its excess returns merely a collection of behavioral biases?</p>

Мировая финансовая система: глобализация или деглобализация?

The paper investigates the current phases of world financial system’s (WFS) development that was identified on the base of Obstfeld-Taylor index describing international capital movement. It is shown that in order to differentiate the main periods of WFS life-cycle one should investigate the first and the second waves of financial globalization. The respective analysis mainly includes comparison of financial deglobalization/globalization process evidences in the wake of global financial crises. On the one hand, almost all global financial markets (except global currency market) demonstrated downturns and/or sharp slowdowns in overall performance during 2007-2009. For example, global banking demonstrated the “flight home” effect. On the other hand, the author consolidated the analysis of the pre-crisis and 2010-2014 financial data, geographical changes in global credit market, global currency market’s dynamics during 2004-2013, shadow banking and VIX-index trends, initiatives on global financial reforms. This showed that the financial world is not becoming deglobalized in medium-term perspective. Moreover, according to author’s research, financial globalization currently undergoes a deep systemic transformation, including a wider geography of its main driving forces. Still, it is not excluded that deglobalization trend is possible in a long-run perspective because of global financial crisis lasting since 2007, persistence of “contagion effect” and deeply linked multiple financial bubbles in the world financial system, high volatility of financial and some other markets. It is supposed that once started processes of deglobalization can be immediately transferred from financial sphere to the world economy. Finally, author outlines necessary conditions for continuing evolutionary financial globalization process. Acknowledgements. The article was prepared with support of the grant of Russian Fund for Humanities (Project № 15-02-00391 “Russian monetary and budgetary policy during current phase of global economic development”).

Forecasting Volatility in the Global Currency Market

Forecasting Volatility in the Global Currency Market

Yuan: Towards an International Reserve Currency

The emergence of China as a powerhouse of the world economy has added a new dimension to the global currency market. China’s impressive economic growth and phenomenal rise in exports have given considerable strength to its currency yuan in recent years. To what extent will China push to make the yuan the world’s reserve currency has become a burning issue. Currently, the share of yuan in total world reserves is hardly 1 per cent. The reasons are obvious. The yuan is not fully convertible, the capital market is shallow, the exchange rate is not flexible and international acceptance of yuan as a store of value is non-existent. In the face of these constraints, China is showing an inclination to make the yuan an international currency and to rival the US dollar and euro. Increase in the inflow of foreign direct investment as well as outflow of investment abroad is enabling China to move towards internationalisation of yuan in the near future. Regionalisation of the yuan is gaining importance with rise in its international trade in Asia. China has now allowed the commercial banks in Hong Kong to accept the yuan-denominated deposits. It is further extending loans in yuan to developing countries. Many steps are being taken towards making the yuan an international reserve currency. At the outset, it appears that the yuan would become an international currency in the foreseeable future.

Prospective Capital Flows and Currency Movements: U.S. Dollar versus Euro

After experiencing long, multiyear surges and slides in past decades, by summer 2013, the dollar had been range-bound against the euro. In this case, by assessing potential capital flows, students consider whether global currency market trends would propel the dollar higher, or if the past few years were just a pause in a much longer dollar depreciation episode. Suitable for both core and elective MBA courses in global financial markets and international finance, this case explores factors pointing to further euro appreciation and to others favoring the dollar. Sorting through mounds of evidence is necessary before forecasting the exchange rate's likely path. Filtering that evidence requires thinking about FX markets, prospective monetary policies, and past and prospective international capital flows.

Prospective Capital Flows and Capital Movements: U.S. Dollar Versus Euro

What accounts for the dollar’s late-2008 surge against the euro after a multiyear decline? In this case, students consider whether the late-2008 dollar appreciation was an aberration, and what may have caused it. Would this trend reverse, or would global currency market trends continue to propel the dollar? Suitable for both core and elective MBA courses in global financial markets, this case explores factors pointing to further euro appreciation and to others favoring the dollar. Sorting through mounds of evidence is necessary before forecasting the exchange rate’s likely path. Filtering that evidence requires both relatively standard thinking about FX markets and an analysis of past and prospective international capital flows.

Su dvigubo kozirio portfeliu per finansų krizės sūkurius

In the article decision management in global currency market FOREX model is presented. The model is based on the adequate for investment profit stochasticity assessment portfolio; earlier suggested by the author; including portfolio and currency exchange rates fluctuations forecasting system; used to evaluate decisions reliability. The possibilities of model practical application are presented. Experimental results of model application enable us to state; that global currency and capital markets are not homogeneous; that is; almost always there are possibilities to find decision management strategy; letting to have advantage over overall market decisions made; using only historical market data. Article in Lithuanian. Su dvigubo kozirio portfeliu per finansų krizės sūkurius Santrauka. Pagrindinis straipsnio tikslas – tolesnis dvigubo kozirio portfelio modelio atitikties tam tikrų globalios valiutų rinkos elgsenos aspektų atspindėjimui vertinimas, efektyvių investavimo strategijų paieška. Šių tikslų siekta nagrinėjant svarbias dvigubo kozirio portfelio analitines savybes ir atliekant statistinį investavimo sprendimų įvertinimą. Eksperimentui buvo pasirinkti FOREX 2007 01 02–2009 04 09 duomenys, tuo siekiama aprėpti svarbius globalius finansų krizės etapus. Reikšminiai žodžiai: dvigubo kozirio portfelis, portfelio investavimo strategija, adekvatusis investicinių sprendimų patikimumo vertinimo portfelis. First Published Online: 10 Dec 2009

Double Trump Decision Management Portfolio in Global Exchange

The main goal of the article is to reveal the content of the so-called double trump decision management model in the global currency market and to present the possibilities and results of its practical application. This model is developed on the basis of the author's earlier proposed model of adequate investment decision evaluation portfolio; and it was experimentally implemented with the aid of a special currency rate change forecasting system. The investigation was carried out using real FOREX data for the period from 11 December to 10 October. The conceptual aim of the article is to broaden the discussion about financial market efficiency by testing market efficiency theory not through an attempt to defeat the market, but through proving market homogeneity, i.e. proving that there are always non-efficiency shoals in the market, when it is possible to elaborate a decision strategy allowing an advantage over the real market decisions over a rather long period of time. The pragmatic aim of the research is to find the possibilities and means of decision management in the currency market strategies advantageous over particular market decisions in general. Continuous development and practical use of such strategies should help in forming market intelligence.