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A new currency launches

The
US Dollar rules the global markets, even whilst it is being bombarded
during the credit crunch.  After all, nearly all countries across Latin
America and the Middle East are tied to the dollar.   That is why the
dollar is the reserve currency of the world.  The thing is though that
China holds over $1 trillion in reserves and, like most of us, must be
wondering about its long-term value.

But what’s the alternative? 

The
euro is still viewed as unstable, the Yen is undervalued and
underutilised, and the Yuan is a good long-term bet but short-term?
Everyone seems to be saying buy Gold, with Gold the only stable reserve
in the world.

So it’s a funny old time with all of these uncertainties for a bank to launch a brand new currency but, according to the Financial Times, that’s exactly what Barclays Capital has decided to do. 

Barclays Capital is launching the EBU, or European Borrowing Unit, today. 

The
EBU is a basket of long and short positions across a portfolio of 10
major currencies, and is targetted at corporate and institutional
borrowers who want an alternative to low-yielding currencies such as
the Yen.  So it isn’t something I can rush out and use to buy a tin of
baked beans down at my local Tesco.

Also, the EBU sounds a bit
weird during this current credit crunch … after all, European’s
Borrowing … who’s interested in that?

I guess I’m interested  because I’m speaking at the GLNet Forum tomorrow about the relationship between MiFID and FX. 

My
understanding is that MiFID does affect FX … but only when tied to
another financial instrument as an integral part of the sale.
Therefore, if I’m buying BMW and General Motors shares and hedge this
with a Euro:Dollar forward contract as part of the deal, then best
execution on that part of the deal has to be delivered also.  However,
if the Euro:Dollar contract is made completely independently of the
BMW/GM contract, then that’s not covered.

I’m sure folks will
disagree with this so it should be fun to have the debate.  And I’ll be
wondering and watching the EBU carefully to see how it might play into
this space.

Meantime, in these days of currency consolidation,
I thought we were all moving towards a single global monetary unit.
Surely that’s the long-term aim.  The only thing is: what will we call
it?

The Glob?

About Chris M Skinner

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here…

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