A lack of price movement in most pairs has encouraged me to look at the history of the Euro. The Euro only came into being in 1990s and therefore has a fairly limited history, however, in this short time it has managed to do some bizarre things. It is difficult to image the Euro surviving much longer given the nature of politicians, the power of public-sector unions, and the disparate nature of individual economies. In this chart we see some wild swings:
eurusd-weekly-longterm-drop-in-ATR-Sep2014.png
Closer to home: is Scotland moving closer to independence? In the end the uncertainty of walking alone is a concern for many voters. However, Scotland could introduce its own currency and have it backed by an asset such as Scottish Porridge Oats, perhaps it would be called the Groat. For simplicity lets say 1 Groat = 1Kg of Oats, then the new Scottish Banks could promise to pay 1Kg of oats in exchange for each Groat. Of course variations in harvests and consumption could cause some interesting swings in the exchange rate.
This would also require some new crosses, for example
GBPGRO
EURGRO
USDGRO
However, there is the possibility of Wales and NI going independent as well so we better use a country prefix
SGR - Scottish Groat
WGR - Welsh Groat
NGR - Northern Ireland Groat
And a lot of people in the North of England feel neglected as well, so perhaps Manchester, Liverpool, Sheffield, Leeds and Newcastle could be part of a new country, in which case Manchester would be the capital, so we also introduce another set of crosses based on MGR - Manchester Groat.
It is a big step to get a divorce, especially when your partner subsidizes your life style, so in the end comfort will probably win over ideology. It was a bribe that convinced the Scots to sell their independence in the first place!
Those of you familiar with works of the genius E.F. Schumacher will remember 'Small Is Beautiful' and Scotland is certainly that. His arguments are too rational for most politicians who generally prefer to spend more than a country can afford to borrow.
In the long term having a proper local currency and careful management of imports (e.g. trade balance) can provide employment and a stable economy. However, my Grandparents had an expectation of income and standard of living which was more realistic and achievable than how we live now. So there could be a significant gap between expectations and reality.
On a more serious note, academics have looked at the concept of regional currencies. Many of our inhumane-economic problems stem from credit, and a trade imbalance is a form of credit. There is a theory that local economies can thrive if they have a regional currency and are not swamped by cheap imports produced in dubious far away factories. However, this is not place for interesting theories...
I was surprised to see such a sharp fall in the value of GBP especially as it happened 'instantly'. Who has the power to make a major currency jump by 70 pips? In the long term this is of no significance. However, EURGBP has two reference levels an old one at 0.7000 and a more recent one at 0.8000. It is amusing to see the euro gain against the pound while the French are pushing their economy and the euro towards a collapse
Des chimères
eurgbp-longterm-view-Sept2014.png
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