Global Foreign Exchange Market Research Articles

Presidential economic approval rating and global foreign exchange market volatility

This paper examines the influence of presidential economic approval rating (PEAR) on the volatility of 15 major foreign exchange (FX) markets. The study reveals that the PEAR index serves as an insightful predictor for forecasting certain FX market volatilities, demonstrating predictive accuracy both in- and out-of-sample period. This predictability endures over longer horizons and withstands various robustness assessments. Notably, the forecasting efficacy of PEAR surpasses that of uncertainty factors and macroeconomic indicators. Additionally, we illustrate that a combined forecast incorporating all predictors enhances forecasting robustness. Finally, our findings indicate that PEAR can also elucidate future jump risks and returns in FX markets.

The Topological Structure of the Global Foreign Exchange Market During Crises – Comparative Network Analysis

Purpose – The aim of this article was to assess the changes in the topological structure of the currency market caused by two crises: the COVID-19 pandemic in 2020 and Russia’s aggression against Ukraine in 2022. A network of major world currencies was analysed over three six-month sub-periods: the pandemic period 1.02–31.07.2020, the war period 1.02–31.07.2022 and the reference period 1.02–31.07.2021. Research method – We have used the dynamic time warping (DTW) method for comparing time series. DTW distances between pairs of individual currencies were calculated, and, based on them, minimum spanning trees (MST) were constructed, whose topological characteristics were analysed. Results – It turned out that the topological structure of the foreign exchange market varies in the sub-periods studied, and the analysed crises affected the currency network. In addition, the networks generated by the MST depend on the choice of base currency used to measure the value of all other currencies. Originality / value / implications / recommendations – The significance of the results obtained lies in providing a description of the topological structure of the market during the observed crises. The detected hierarchical structures can be useful in theoretical descriptions of currencies and in the search for economic factors affecting specific groups of countries.

The Economic and Financial Impacts of Feds Rate Hikes: Emerging Economy, Financial and Commodity Markets

With the fed rate hikes recently, there are many economic and financial impacts caused by it around the world. This article mainly studies the economic and financial impacts of the Fed's interest rate hike on the world, and give some relevant policies and suggestions. The Fed's interest rate hike has a huge impact on all economies around the world, especially emerging economies. At the same time, it has had a great impact on the global foreign exchange market, commodity market, and capital market. Since the Federal Reserve is in the process of raising interest rates unprecedentedly in history, the impact of this rate hike on the world is also different and deeper than before. By researching on the economic and financial impacts of the Fed's interest rate hike, this article aims to understand the Fed's interest rate hike behavior, predict the global economic situation to a certain extent and help to make better decision.

Dedollarization of the Global Economy: Trends and Perspectives

The quantitative indicators of dedollarization in the global economy are given. It is revealed that in the short-term the measures to abandon the U.S. dollar may have a limited impact on the global foreign exchange market, but in the longerterm the demand for the U.S. dollar may weaken. The implementation of transactions directly by countries on a bilateral basis using national currencies will thus make the global foreign exchange market more balanced. It is found that the development of dedollarization process is influenced by three major factors: the U.S. dollar’s usage as an instrument of sanctions pressure; the strengthening of the U.S. dollar; the emergence of new technological innovations. The article concludes that the development of dedollarization process along with the creation of new international payments mechanisms in the middle-term will continue to reduce the role of the U.S. dollar in the modern international monetary and financial system.

THE EFFECTIVENESS OF CURRENCY MARKET REGULATION IN ARMENIA IN THE CONTEXT OF EXTERNAL CHALLENGES

In the contemporary context of globalization, the intricate execution of monetary policy is significantly influenced by the ongoing developments within the global economy. In the current wave of developments, the global economic market has undergone structural changes due to the negative consequences of COVID-19, the Russian-Ukrainian conflict, disruptions caused by regional instabilities, and shifts that have impacted the natural progression of global economies. These changes have significantly influenced the fundamental trajectory of economic growth across countries. Despite its own domestic challenges, the Republic of Armenia, is unable to remain immune to these multifaceted alterations. Moreover, internal issues further exacerbate the situation. Consequently, the imperative for astute economic governance has grown even more pronounced. Through a comprehensive analysis of international experience in the implementation of monetary policy, shocks in the global foreign exchange market, the authors sought to fully understand and endorse the current problems facing the Republic of Armenia economy in the context of the development of the Republic of Armenia foreign exchange market. The objective was to explore various forms of applied monetary policy, external influences, economic indicators of Armenia, the structure and dynamics of debt and foreign exchange reserves, inflation levels, reasons for the appreciation of the dram currency against foreign currencies, foreign trade turnover, and substantiate the effectiveness of the ongoing currency policy in our country.

Позиции и перспективы валют стран с формирующимися рынками

Over the past two decades of the 21st century, there has been an increase in the role of the currencies of emerging markets in the global foreign exchange market, but their positions in the international monetary system have not significantly changed. The article demonstrates the continuing gap between the role of the leading emerging market economies in the global economy and finance and the position of their currencies in the international monetary system. This gap is driven by lower liquidity premiums for the currencies of EME countries, relatively underdevelopment of their financial systems and greater financial instability, restrictions on the placement of securities denominated in national currencies on international financial markets, as well as geopolitical factors (including the risks of imposing sanctions regimes by the developed countries). It is shown that the internationalization of the EME currencies is facilitated by such factors as internal financial stability, the relative development of national financial markets and a significant role of issuing countries in world trade. On the example of China, the relative success of the policy of internationalization of the yuan is shown, on the example of Mexico and Russia, the role of participation in regional integration associations to expand the external circulation of national currencies. There is an increase in the role of geopolitical factors in determining the positions of individual EME currencies, especially since 2022. The scenario of fragmentation of the international monetary and financial system is considered, which implies a relative weakening of the positions of current leading world currencies with a relative strengthening of the positions of the individual EME currencies (primarily Chinese yuan). Measures are proposed to strengthen the positions of EME currencies in the new geopolitical conditions: activation of interaction processes in regional and mega-regional associations, formation of payment and settlement systems within them in national currencies using digital technologies, creation of regional markets for securities denominated in national currencies, the conclusion and activation of multilateral currency swap agreements between the central banks of EME countries.

On the Geographical Dispersion of Euro Currency Trading: An Analysis of the First 20 Years and a Comparison to the RMB

The Euro and the RMB are both relatively new currencies traded on the global foreign exchange market. While the Euro was introduced in 2001, China started cross-border settlement in RMB in 2009. We analyse the evolution of Euro trading based on data from the BIS triennial survey and compare the patterns to the experience of RMB internationalization. We find that—similar to the RMB—Euro trading displayed some convergence to the geographical pattern of all currencies in the first years of its existence. Thereafter, the convergence process appears to have come to halt. We document that the determinants of Euro trading include links to offshore trading centres, economic and institutional characteristics, but these turn out to be rather unstable over time. The RMB, in comparison, displays a clear convergence pattern and is more strongly influenced by policies and recent trade disputes. Furthermore, we compare the geographical dispersion of Euro trading to the previous D-Mark period and to other commonly used international currencies. These results help to interpret the evidence on initial convergence as a rebound effect from a decline in the international use of the D-Mark during the 1990s.

Is the Renminbi a Global Currency? An Evaluation Based on Offshore Foreign Exchange Market Trading Patterns

This article provides a new framework to evaluate the status of Renminbi internationalization. It proposes that the trading patterns of a currency in the global foreign exchange market embody the currency’s position in the international monetary system. Based on foreign exchange trading data provided by CLS Group, the article constructs a ranking of major international currencies including the Renminbi. It finds that the Renminbi shares more similarities in foreign exchange trading patterns with the established global currencies like the US dollar and the Euro than with those regional currencies. The article also explores the policy implications that the new evaluation approach provides.

Competition of the world leading currencies: Features of the current stage

Subject. The article analyzes the competition of the world leading currencies in the global economy, specifics of the current stage, trends in the role of particular currencies in the global market. Objectives. The purpose is to review the current positions of the U.S. Dollar, Euro and Yuan in the global financial markets, assess prospects for maintaining the leading role of the U.S. Dollar, development trends in the position of Euro and Yuan. Methods. I applied the content analysis of available sources, provide a historical overview of issues under consideration, scrutinized the estimates of financial analysts. Results. The paper unveils reasons for increased competition of the leading currencies (U.S. Dollar, Euro, Yuan) in the global foreign exchange market, which include an increase in the scale of payment transactions in the global financial and commodity markets. It also reveals trends in the use of particular currencies in foreign trade and financial transactions, evaluates prospects for the use of specific world currencies in the global economy. Conclusions. At present, U.S. Dollar maintains its leading positions. However, in the future, an increase in the use of Euro- and Yuan-denominated transactions should be expected in the commodity and financial markets due to enlarged presence of Chinese companies in the global economy. Further development of European integration can ensure the expansion of the single European currency in the global financial market. The share of Yuan in foreign exchange reserves of central banks tends to increase. Private investors' demand for Yuan is also expected to grow.

Contesting Hyperglobal Framings: An Analytical Approach

AbstractSince the term globalization erupted in public and academic discourses in the late-1980s, the hyperglobal perspective has been a prominent framing offered to understand global phenomena. Despite important challenges, it has remained extremely popular with its rhetoric exerting a powerful influence across the political spectrum, and in business and policy circles. This article argues that one reason for this durability is its inadvertent reproduction by the traditional understandings of “local” and “global” utilized in frameworks critiquing the hyperglobal perspective. More specifically, as scholars have noted, the global-local tends to be marked by dichotomous binaries and placed in a scalar hierarchy where the global overpowers the local. To side-step the issues emerging from the global-local approach, a conceptual rubric focusing on the “global-particular” relationship is offered as an alternative. This orientation helps prevent the importation of the dichotomous binaries and scalar hierarchies that reproduce hyperglobal imaginaries. As a result, it is easier to retain the complexity and contingency of global dynamics, and by extension, challenge hyperglobal framings. A case study of the global foreign exchange market is used to elaborate on the framework and to show why it provides a stronger point of departure for researching and theorizing globalization.

Countries of BRICS group on Forex market

Motivation: The globalization process has deepened the links between economies in the global socio-economic system. It has resulted in the shift of economic power from high developed countries to economies that have entered the path of fast socio-economic development, especially emerging markets. The emerging economies’ dynamic economic growth empowers the reduction of the development gap in relation to high developed economies. In the context of emerging markets, the special importance is dedicated to so-called BRICS countries. The share of BRICS countries in total world production as well as in total global trade, increases. The huge population and the GDP growth per capita make these economies the important markets nowadays. The financial market, especially the foreign exchange market becomes more and more important in the world economy. Aim: The aim of the paper is to examine the participation of the BRICS countries in the global foreign exchange market. The paper assumes that the increase of the BRICS group importance on the global markets does not correspond with the increase in the importance of these economies currencies on the Forex market. The BRICS group’s turnover in global foreign exchange turnover will be examined. In addition, the share of these currencies in the segments of particular types of transactions will be examined. Results: The importance of the BRICS group in the global economy is growing. However, this growth is not accompanied by growth of interest in currencies of this group on Forex market. The share of transactions concluded with the use of currencies of BRICS group was only 5% in 2019. Whereas, total currency turnover of the BRICS group countries was only 3% in 2019. The share of BRICS countries in individual market segments can be considered stable, yet insignificant.

The Legal Underpinnings of the Global Foreign Exchange Market

The Legal Underpinnings of the Global Foreign Exchange Market

Global price discovery in the Australian dollar market and its determinants

With Australia's growing importance in the global economy, the Australian dollar (AUD) has started to play a significant role in the global Foreign Exchange (FX) market. Using intraday trading data over the period of January 1999 to December 2013, we examine the determinants of price discovery in the AUD markets at two different time horizons. We find that the short-run determinants of price discovery include macroeconomic news, order flows and market state variables (i.e., return, volatility, trading volume and bid/ask spread). After controlling for the cross-region information flow and dynamic self-dependence, we find that more favorable market states and more unexpected order flows on macroeconomic news announcement days make a significant contribution to price discovery in the AUD market. Furthermore, we found that a higher level of market integration and consolidation contributes to price discovery process in the long-run.

Is Renminbi a (Truly) International Currency? An Evaluation Based on Offshore Foreign Exchange Market Trading Patterns

This article provides a new framework to evaluate the status of Renminbi internationalization. It proposes that the trading patterns of a currency in global foreign exchange market embody the currency’s position in the international monetary system. Based on foreign exchange trading data provided by CLS Group, the article constructs a ranking of major international currencies including Renminbi. It finds that Renminbi shares more similarities in foreign exchange trading patterns with the established global currencies like US dollar and Euro than with those regional currencies. The article also explores the policy implications that the new evaluation approach provides.

Currency co-movement and network correlation structure of foreign exchange market

We study the correlations of exchange rate volatility in the global foreign exchange(FX) market based on complex network graphs. Correlation matrices (CM) and the theoretical information flow method (Infomap) are employed to analyze the modular structure of the global foreign exchange network. The analysis demonstrates that there exist currency modules in the network, which is consistent with the geographical nature of currencies. The European and the East Asian currency modules in the FX network are most significant. We introduce a measure of the impact of individual currency based on its partial correlations with other currencies. We further incorporate an impact elimination method to filter out the impact of core nodes and construct subnetworks after the removal of these core nodes. The result reveals that (i) the US Dollar has prominent global influence on the FX market while the Euro has great impact on European currencies; (ii) the East Asian currency module is more strongly correlated than the European currency module. The strong correlation is a result of the strong co-movement of currencies in the region. The co-movement of currencies is further used to study the formation of international monetary bloc and the result is in good agreement with the consideration based on international trade.

Causal relationship between the global foreign exchange market based on complex networks and entropy theory

The foreign exchange (FX) market is a typical complex dynamic system under the background of exchange rate marketization reform and is an important part of the financial market. This study aims to generate an international FX network based on complex network theory. This study employs the mutual information method to judge the nonlinear characteristics of 54 major currencies in international FX markets. Through this method, we find that the FX network possesses a small average path length and a large clustering coefficient under different thresholds and that it exhibits small-world characteristics as a whole. Results show that the relationship between FX rates is close. Volatility can quickly transfer in the whole market, and the FX volatility of influential individual states transfers at a fast pace and a large scale. The period from July 21, 2005 to March 31, 2015 is subdivided into three sub-periods (i.e., before, during, and after the US sub-prime crisis) to analyze the topology evolution of FX markets using the maximum spanning tree approach. Results show that the USD gradually lost its core position, EUR remained a stable center, and the center of the Asian cluster became unstable. Liang's entropy theory is used to analyze the causal relationship between the four large clusters of the world.

Countries of the Eurasian Economic Union in the Global Economy

Purpose: the aim of the paper was to assess the level of involvement of the Eurasian economic Union (hereinafter EAEC) into the global economy. Methods: methods of system and synthesis analysis, structural-logical, economic-statistical, comparative and retrospective analysis were used in the study. Results: the structure of the global economy as a range of functional subsystems was presented. The indicators of involvement of countries into the global economy for each functional subsystem were suggested. The levels measuring the range of involvement of the country in global economy for each functional subsystem were proposed. The level of engagement of Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia into the global economy for each functional subsystem was assessed. The value of the levels of involvement of the EAEC countries were summarized in the table. Conclusions and Relevance: the EAEC countries are characterized by a low level of involvement in the global economy for most of the functional subsystems. The greatest number of lowest values were concentrated in such subsystems as the global transnational production and the global monetary system. Low values of involvement levels were obtained in all countries in the global transnational production subsystem, which indicated a lack of development of the transnational production of the EAEC countries. Low values of involvement levels were received in the world monetary subsystem in all countries, except Russia, showed the average level of involvement, due to the presence of the share of the ruble in the total turnover of the global foreign exchange market for currency pairs in the year 2016. A set of the best values were obtained in the common information space subsystem, where all the countries except Kyrgyzstan, showed an average level due to criterion – percentage of individuals using the internet, instead of the criterion, reflecting the development of infrastructural capacity. Russia was characterized by a higher level, and Kyrgyzstan, by a lower level of involvement in the global economy compared to other countries of the EAEC.

Assessing Role of Gold as World’s Reserve Currency in Terms of Uncertainty

Objectives: The research is aimed at extending the holistic theoretical concept of genesis and development of the global foreign exchange market. It also presents guidelines to reorganize the world monetary system, as well as a rationale for the author’s view of a place and a role of gold on the today’s world currency market (in terms of uncertainty). Methods/ Analysis: Considering the methodological issues within the examined problem, the authors were supported by principles of the modern economic theory. The research was based on the system analysis; specific problems were solved with the help of the comparative, statistical and graphical analyses, using ranking and clustering methods. Results: The paper has presented an analysis for the current situation with the reserve currency, the US dollar, and given ideas of its possible reorientation towards gold as a more stable reserve asset in the global financial and currency markets. The authors have concluded that in the current conditions in the global foreign exchange market, there is no alternative to the existing reserve currency, the US dollar, but there is an opportunity to return the gold or e-gold as a reserve currency or a currency unit of account as a basic element within the global monetary system. Novelty/Improvements: There are the authors’ views on the current state of gold in the world and national monetary systems; the possibility has been proven to return the functions of the world’s money and a single international payment instrument to gold.Keywords: Gold Exchange Standard, Gold Value Standard, Monetary Gold, World Monetary System

ОСОБЛИВОСТІ ФУНКЦІОНУВАННЯ ГЛОБАЛЬНОГО ВАЛЮТНОГО РИНКУ

В статті обґрунтовано методологію функціонування глобального валютного ринку, виокремлено його специфіку та особливості структурних елементів. Незважаючи на відсутність єдиного регулятора, правила функціонування на ринку є достатньо уніфікованими та прозорими. Глобальний валютний ринок виступає своєрідним трансмісійним середовищем інструментів валютного механізму, дія яких спрямована на досягнення національних економічних інтересів. Використання, в першу чергу, валютного курсу як інструменту валютного механізму дозволяє завдяки глобальному валютному ринку впливати не лише на внутрішню економічну ситуацію, а й на зовнішню, змінюючи важелі впливу у глобальній економіці.

The influence of the European debt crisis on the Russian foreign exchange market through cross-border capital movement

The article gives a short description of the condition of the global foreign exchange market and the place of the Russian currency in it. The consequences of the influence of the European debt crisis on the main indices of the Russian foreign exchange market are studied. Their correlation with events in the European countries and the actions of the monetary authorities in order to eliminate external shocks are analyzed. Principal channels of the influence of the European crisis on the Russian foreign exchange market are defined.