thehappyanarchist asked:

Don't you think with some kind of currency, it's going to lead to oppression and the evil construction of this monopoly of greed we face everyday?

Currencies are just tools. A tool for the medium of exchange. Tools should never be feared. Currencies are made possible when one individual wants to exchange their goods/services for another individual’s goods/services. 

Only when the state controls money can it lead to oppression and monopoly. 

The problem isn’t the currency. The problem is the state. 

ISIS wants to introduce its own currency and plans to bring back solid gold and silver dinar coins, it has emerged.

The Middle East terror group apparently wants to introduce its own Islamic currency as part of its attempts to solidify its makeshift caliphate.

Militants are said to want to bring back the original dinar, which is an ancient currency from early Islam, and religious figures in Mosul and Iraq’s Nineveh province have apparently announced its return in mosques.

The Islamic State gets it. Why can’t our own governments?

Foreign Exchange Reserves | A Definition

Foreign-exchange reserves (also called forex reserves or FX reserves) are assets held by central banks and monetary authorities, usually in different reserve currencies, mostly the United States dollar, and to a lesser extent the Euro, the Pound sterling, and the Japanese yen, and used to back its liabilities, e.g., the local currency issued, and the various bank reserves deposited with the central bank, by the government or financial institutions.


France/US > two currencies
France’s Hollande upbeat as euro nears parity with dollar
March 13 2014 -
French President François Hollande says the euro has reached “a good equilibrium” against the US dollar as the two currencies edge closer to parity after the euro dropped to a 12-year low.
“There will be a favourable effect on activity with a euro that is now at a good equilibrium,” Hollande told reporters on Thursday, noting that when the euro was created it was also near parity with the dollar.
Earlier in the day, the single European currency briefly fell below $1.05 in Asian trading, its first such drop in 12 years, and analysts believe it could soon ease further.
The euro, which neared $1.40 last May, has been sliding as the European Central Bank (ECB) embarked on a 1.14 trillion euro stimulus programme designed to boost flagging growth across the 19-member bloc.
Meanwhile, the attractiveness of the dollar has risen for investors as it appears increasingly likely interest rates will begin rising in the next few months.
Hollande described the ECB’s move as “courageous, audacious and responsible”, urging French banks to join in the effort by making it easier to borrow money.
The French government is hoping the combined effect of a depreciating euro and falling energy prices will help it meet its target of 1% growth for 2015, which some critics have described as too optimistic.

What The Record Plunge In The Euro Means For Investors

The news coverage of the weakness in the Euro has been incessant. It has been completely justified, however, considering the currency’s plunge has been equally incessant. But what implications does the move have on one’s investments? Are the news headlines simply trivial noise to ignore or is there a real impact on investors as a result of the Euro’s drop? From the perspective of a U.S. equity investor, it has a material impact and we will illustrate it below.

First, however, let’s look at the magnitude of the Euro’s decline. The headline refers to the Euro’s “Record Plunge”. So what makes the plunge record-setting? Today happens to be the 1-year anniversary of the Euro’s high close over the past 3.5 years. A look at its return since then reveals the worst year-over-year performance in the history of the currency going back to 1997.

Over the past few days, the year-over-year return in the Euro has registered -23%. This surpasses the previously worst 12-month returns set in 2000 at -21% and 2009 at -20%. Needless to say, the ubiquitous “weak Euro” headlines have been warranted. (As a word of caution, this record weakness does not imply anything regarding the Euro’s future performance. Indeed, 8-10 months following the previous low Y-O-Y readings, the Euro was higher by 10%-20%).

What does the Euro weakness mean for investors? It obviously has a profound impact on all sorts of asset classes all around the globe. We will present an example for U.S. investors below, however the concept applies to any investments effected by currency moves.

For U.S. equity investors, the most common and easiest way of gaining exposure to European stocks is through U.S.-based mutual funds and ETF’s. While these funds are invested in European companies, the investments are denominated in U.S. Dollars. That means that one’s European investments are impacted by the exchange rate between U.S. Dollars and the Euro. Basically, the return generated by a U.S. investor’s investments in European equities needs to offset by the return in the U.S. Dollar versus the Euro over the same period.

For example, if the European stocks rise 10% but the Dollar also rises by 10% over that same time, the Dollar strength completely cancels out the equity gains. On the other hand, if the Dollar weakens by 10% during that time, it would result in a net 20% gain on the European stock investment. (This is only meant as a crude example of the impact of currency moves on a fund. There are obviously many factors that determine the returns of a specific fund.)

How about a real-life example. This is one that may actually have impacted some readers over the past year. Let’s look at the performance of 2 U.S.-based European equity ETF’s: the SPDR EURO STOXX 50 ETF (Ticker, FEZ) and the WisdomTree Europe Hedged Equity ETF (Ticker, HEDJ). The HEDJ invests in European equities but hedges its exposure to the Euro currency. That is, it sells short exposure to the Euro currency so that it offsets any weakness in the Euro/strength in the Dollar. On the other hand, however, its returns would be similarly negatively impacted by a rise in the Euro currency. The FEZ on the other hand, is not hedged against currency moves. Therefore, any strength in the Euro will aid its return on its European equity investments and any Euro weakness will hurt it. Needless to say, the Euro’s weakness has hurt the FEZ over the past year.

Here is the performance comparison between the Euro-hedged HEDJ and the unhedged FEZ over the past year.

The HEDJ has gained over 22% over the past year, in line with many of the European stock averages. Meanwhile, the FEZ is actually down by 9% in the past 12 months. Considering the record 12-month decline in the Euro, you can figure out the main culprit here: the Euro currency risk.

This example is meant to be illustrative only. It is NOT a recommendation for  or against any investment vehicle, product or methodology. It simply shows an example of the impact that the Euro weakness has had for U.S. investors.

If one wants international exposure, this complicates things a little since the currency exposure is another variable to consider. So how does one approach this task? Well, if they have a forecast for where they think a currency is going to go, that can direct them to the appropriate investment, i.e., hedged or unhedged. How do we tackle the currency effect when selecting investments in our management business? It’s simple: we don’t. We endeavor to identify and invest in the sectors showing relative strength at any given time. That is, we try to invest in what is working at the moment. And if the impact of a currency’s move is helping or hurting a particular fund, it will be reflected in the fund’s price. And that’s all that we really care about. It’s difficult enough to make one accurate forecast let alone two. Therefore, we prefer to let prices tell us what is actually occurring.

The record 12-month drop in the Euro currency has righfully garnered lots of attention in the media. For U.S. investors, this weakness, or any currency moves, can have a material impact on international investments. Therefore, it pays to at least know what type of currency exposure a particular investment is subject to if one is considering putting money into it. A prime illustration is the negative impact that the Euro weakness has had over the past 12 months on unhedged European funds located in the U.S.

While that may not help investors with their investment selection going forward, hopefully it provides a little insight into the impact that currency moves can have on their investments.


Photo by iStockphoto.

More from Dana Lyons, JLFMI and My401kPro.

The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.