Spread Trading

The euro and the History of Previous Currency Unions
By Sam Vaknin
Author of "Malignant Self Love - Narcissism Revisited"

Football Betting Spread I. The History of Monetary Unions

When trading currencies, the trade is always done in pairs – currency Pair. One currency is bought and the other sold. For example, you buy Euros with Dollars, anticipating, the Euro to increase in value relative to the Dollar. If the Euro rises relative to the Dollar, you sell the position and have made a profit. Most Commonly Traded Currencies (the “Majors”):

Commodity Spread Trading "Before long, all Europe, save England, will have one money". This
was written by William Bagehot, the Editor of "The Economist", the
renowned British magazine, 120 years ago when Britain, even then,
was heatedly debating whether to adopt a single European Currency or
not.

Skeptics had expected stock markets to reel if France, an architect of the European Union, voted down the European Union constitution. But markets took the news in stride Monday with little effect to indices.The Euro fell to $1.2466 in late afternoon trading Monday, a penny below Friday's New York close of $1.2575 in currency trading.

Nfl Betting Spread A century later, the euro is finally here (though without British
participation). Having braved numerous doomsayers and Cassandras,
the currency - though much depreciated against the dollar and
reviled in certain quarters (especially in Britain) - is now in use
in both the eurozone and in eastern and southeastern Europe (the
Balkan). In most countries in transition, it has already replaced
its much sought-after predecessor, the Deutschmark. The euro still
feels like a novelty - but it is not. It was preceded by quite a few
monetary unions in both Europe and outside it.

(EUNN) With Germany's elections still in the air, week low against the US dollar. The uncertainties of Germany's elections and the US raising interest rates affected currency trading on Monday with the Euro trading at $1.21 to the dollar. Currency traders believed that an inconclusive German election threatened a prolonged period of uncertainty for the European Union.

Advanced Commodity Spread What lessons does history teach us? What pitfalls should we avoid
and what features should we embrace?

The Vega complex is housed in a magnificent 1950s trade union building, while Rust is spread over three floors with a cocktail bar, main bar and large dancefloor.

Betting Exchange Spread People felt the need to create a uniform medium of exchange as early
as in Ancient Greece and Medieval Europe. Those proto-unions did not
have a central monetary authority or monetary policy, yet they
functioned surprisingly well in the uncomplicated economies of the
time.

Since the market is constantly moving, there are always trading opportunities, whether a currency is strengthening or weakening in relation to another currency. When you trade currencies, they literally work against each other. USD declines for example, it is because the U.S. dollar gets stronger against the Euro and vice versa. So, USD will decline (i.e. Euro will weaken versus the dollar), you would sell EUR now and then later you buy Euro back at a lower price and take your profits. USD appreciates.

Stock Spread Trading The first truly modern example would be the monetary union of
Colonial New England.

Online Spread Betting The four kinds of paper money printed by the New England colonies
(Connecticut, Massachusetts Bay, New Hampshire and Rhode Island)
were legal tender in all four until 1750. The governments of the
colonies even accepted them for tax payments. Massachusetts - by far
the dominant economy of the quartet - sustained this arrangement for
almost a century. The other colonies became so envious that they
began to print additional notes outside the union. Massachusetts -
facing a threat of devaluation and inflation - redeemed for silver
its share of the paper money in 1751. It then retired from the
union, instituted its own, silver-standard (mono-metallic), currency
and never looked back.

Complete Guide Spread Trading A far more important attempt was the Latin Monetary Union (LMU). It
was dreamt up by the French, obsessed, as usual, by their declining
geopolitical fortunes and monetary prowess. Belgium already adopted
the French franc when it became independent in 1830. The LMU was a
natural extension of this franc zone and, as the two teamed up with
Switzerland in 1848, they encouraged others to join them. Italy
followed suit in 1861. When Greece and Bulgaria acceded in 1867, the
members established a currency union based on a bimetallic (silver
and gold) standard.

Betting Horse Racing Spread The LMU was considered sufficiently serious to be able to flirt with
Austria and Spain when its Foundation Treaty was officially signed
in 1865 in Paris. This despite the fact that its French-inspired
rules seemed often to sacrifice the economic to the politically
expedient, or to the grandiose.

Low Spread Forex Trading The LMU was an official subset of an unofficial "franc area"
(monetary union based on the French franc). This is similar to the
use of the US dollar or the euro in many countries today. At its
peak, eighteen countries adopted the Gold franc as their legal
tender (or peg). Four of them (the founding members of the LMU:
France, Belgium, Italy and Switzerland) agreed on a gold to silver
conversion rate and minted gold and silver coins which were legal
tender in all of them. They voluntarily limited their money supply
by adopting a rule which forbade them to print more than 6 franc
coins per capita.

Sport Spread Betting Europe (especially Germany and the United Kingdom) was gradually
switching at the time to the gold standard. But the members of the
Latin Monetary Union paid no attention to its emergence. They
printed ever increasing quantities of gold and silver coins, which
constituted legal tender across the Union. Smaller denomination
(token) silver coins, minted in limited quantity, were legal tender
only in the issuing country (because they had a lower silver content
than the Union coins).

Trading Spread And Seasonals The LMU had no single currency (akin to the euro). The national
currencies of its member countries were at parity with each other.
The cost of conversion was limited to an exchange commission of
1.25%.

Arbitrage Spread Trading Government offices and municipalities were obliged to accept up to
100 Francs of non-convertible and low intrinsic value tokens per
transaction. People lined to convert low metal content silver coins
(100 Francs per transaction each time) to buy higher metal content
ones.

Betting Guide Insider Sports With the exception of the above-mentioned per capita coinage
restriction, the LMU had no uniform money supply policies or
management. The amount of money in circulation was determined by the
markets. The central banks of the member countries pledged to freely
convert gold and silver to coins and, thus, were forced to maintain
a fixed exchange rate between the two metals (15 to 1) ignoring
fluctuating market prices.

Betting Spread Successful Even at its apex, the LMU was unable to move the world prices of
these metals. When silver became overvalued, it was exported (at
times smuggled) within the Union, in violation of its rules. The
Union had to suspend silver convertibility and thus accept a
humiliating de facto gold standard. Silver coins and tokens remained
legal tender, though. The unprecedented financing needs of the Union
members - a result of the First World War - delivered the coup de
grace. The LMU was officially dismantled in 1926 - but expired long
before that.

College Football Betting The LMU had a common currency but this did not guarantee its
survival. It lacked a common monetary policy monitored and enforced
by a common Central Bank - and these deficiencies proved fatal.

Betting Financial Risk Spread In 1867, twenty countries debated the introduction of a global
currency in the International Monetary Conference. They decided to
adopt the gold standard (already used by Britain and the USA)
following a period of transition. They came up with an ingenious
scheme. They selected three "hard" currencies, with equal gold
content so as to render them interchangeable, as their legal tender.
Regrettably for students of the dismal science, the plan came to
naught.

Betting Point Spread On Nfl Another failed experiment was the Scandinavian Monetary Union (SMU),
formed by Sweden (1873), Denmark (1873) and Norway (1875). It was a
by-now familiar scheme. All three recognized each others' gold
coinage as well as token coins as legal tender. The daring
innovation was to accept the members' banknotes (1900) as well.

Betting Point Spread As Scandinavian schemes go, this one worked too perfectly. No one
wanted to convert one currency to another. Between 1905 and 1924, no
exchange rates among the three currencies were available. When
Norway became independent, the irate Swedes dismantled the moribund
Union in an act of monetary tit-for-tat.

Super Bowl Betting Spread The SMU had an unofficial central bank with pooled reserves. It
extended credit lines to each of the three member countries. As long
as gold supply was limited, the Scandinavian Kronor held its ground.
Then governments started to finance their deficits by dumping gold
during World War I (and thus erode their debts by fostering
inflation through a string of inane devaluations). In an
unparalleled act of arbitrage, central banks then turned around and
used the depreciated currencies to scoop up gold at official (cheap)
rates.

Betting Fan Football Guide When Sweden refused to continue to sell its gold at the officially
fixed price - the other members declared effective economic war.
They forced Sweden to purchase enormous quantities of their token
coins. The proceeds were used to buy the much stronger Swedish
currency at an ever cheaper price (as the price of gold collapsed).
Sweden found itself subsidizing an arbitrage against its own
economy. It inevitably reacted by ending the import of other
members' tokens. The Union thus ended. The price of gold was no
longer fixed and token coins were no more convertible.

Spread Betting Uk The East African Currency Area is a fairly recent debacle. An
equivalent experiment, involving the CFA franc, is still going on in
the Francophile part of Africa.

Betting Betting Fan Football The parts of East Africa ruled by the British (Kenya, Uganda and
Tanganyika and, in 1936, Zanzibar) adopted in 1922 a single common
currency, the East African shilling. The newly independent countries
of East Africa remained part of the Sterling Area (i.e., the local
currencies were fully and freely convertible into British Pounds).
Misplaced imperial pride coupled with outmoded strategic thinking
led the British to infuse these emerging economies with inordinate
amounts of money. Despite all this, the resulting monetary union was
surprisingly resilient. It easily absorbed the new currencies of
Kenya, Uganda and Tanzania in 1966, making them legal tender in all
three and convertible to Pounds.

Betting Company Germany In Ironically, it was the Pound which gave way. Its relentless
depreciation in the late 60s and early 70s, led to the
disintegration of the Sterling Area in 1972. The strict monetary
discipline which characterized the union - evaporated. The
currencies diverged - a result of a divergence of inflation targets
and interest rates. The East African Currency Area was formally
ended in 1977.

Ig Index Spread Betting Not all monetary unions ended so tragically. Arguably, the most
famous of the successful ones is the Zollverein (German Customs
Union).

Betting Guide Practical The nascent German Federation was composed, at the beginning of the
19th century, of 39 independent political units. They all busily
minted coins (gold, silver) and had their own - distinct - standard
weights and measures. The decisions of the much lauded Congress of
Vienna (1815) did wonders for labour mobility in Europe but not so
for trade. The baffling number of (mostly non-convertible) different
currencies did not help.

Betting Blogspot Com Site The German principalities formed a customs union as early as 1818.
The three regional groupings (the Northern, Central and Southern)
were united in 1833. In 1828, Prussia harmonized its customs tariffs
with the other members of the Federation, making it possible to pay
duties in gold or silver. Some members hesitantly experimented with
new fixed exchange rate convertible currencies. But, in practice,
the union already had a single currency: the Vereinsmunze.

Learn Spread Betting The Zollverein (Customs Union) was established in 1834 to facilitate
trade by reducing its costs. This was done by compelling most of the
members to choose between two monetary standards (the Thaler and the
Gulden) in 1838. Much as the Bundesbank was to Europe in the second
half of the twentieth century, the Prussian central bank became the
effective Central Bank of the Federation from 1847 on. Prussia was
by far the dominant member of the union, as it comprised 70% of the
population and land mass of the future Germany.

Financial Spread Trading The North German Thaler was fixed at 1.75 to the South German Gulden
and, in 1856 (when Austria became informally associated with the
Union), at 1.5 Austrian Florins. This last collaboration was to be a
short lived affair, Prussia and Austria having declared war on each
other in 1866.

Football Betting Spread Bismarck (Prussia) united Germany (Bavarian objections
notwithstanding) in 1871. He founded the Reichsbank in 1875 and
charged it with issuing the crisp new Reichsmark. Bismarck forced
the Germans to accept the new currency as the only legal tender
throughout the first German Reich. Germany's new single currency was
in effect a monetary union. It survived two World Wars, a
devastating bout of inflation in 1923, and a monetary meltdown after
the Second World War. The stolid and trustworthy Bundesbank
succeeded the Reichsmark and the Union was finally vanquished only
by the bureaucracy in Brussels and its euro.

Commodity Spread Trading This is the only case in history of a successful monetary union not
preceded by a political one. But it is hardly representative.
Prussia was the regional bully and never shied away from enforcing
strict compliance on the other members of the Federation. It
understood the paramount importance of a stable currency and sought
to preserve it by introducing various consistent metallic standards.
Politically motivated inflation and devaluation were ruled out, for
the first time. Modern monetary management was born.

Nfl Betting Spread Another, perhaps equally successful, and still on-going union - is
the CFA franc Zone.

Advanced Commodity Spread The CFA (stands for French African Community in French) franc has
been in use in the French colonies of West and Central Africa (and,
curiously, in one formerly Spanish colony) since 1945. It is pegged
to the French franc. The French Treasury explicitly guarantees its
conversion to the French franc (65% of the reserves of the member
states are kept in the safes of the French Central Bank). France
often openly imposes monetary discipline (that it sometimes lacks at
home!) directly and through its generous financial assistance.
Foreign reserves must always equal 20% of short term deposits in
commercial banks. All this made the CFA an attractive option in the
colonies even after they attained independence.

Betting Exchange Spread The CFA franc zone is remarkably diverse ethnically, lingually,
culturally, politically, and economically. The currency survived
devaluations (as large as 100% vis a vis the French Franc), changes
of regimes (from colonial to independent), the existence of two
groups of members, each with its own central bank (the West African
Economic and Monetary Union and the Central African Economic and
Monetary Community), controls of trade and capital flows - not to
mention a host of natural and man made catastrophes.

Stock Spread Trading The euro has indirectly affected the CFA as well. "The Economist"
reported recently a shortage of small denomination CFA franc
notes. "Recently the printer (of CFA francs) has been too busy
producing euros for the market back home" - complained the West
African central bank in Dakar. But this is the minor problem. The
CFA franc is at risk due to internal imbalances among the economies
of the zone. Their growth rates differ markedly. There are mounting
pressures by some members to devalue the common currency. Others
sternly resist it.

Online Spread Betting "The Economist" reports that the Economic Community of West African
States (ECOWAS) - eight CFA countries plus Nigeria, Ghana, Guinea,
the Gambia, Cape Verde, Sierra Leone, and Liberia - is considering
its own monetary union. Many of the prospective members of this
union fancy the CFA franc even less than the EU fancies their
capricious and graft-ridden economies. But an ECOWAS monetary union
could constitute a serious - and more economically coherent -
alternative to the CFA franc zone.

Complete Guide Spread Trading A neglected monetary union is the one between Belgium and
Luxembourg. Both maintain their idiosyncratic currencies - but these
are at parity and serve as legal tender in both countries since
1921. The monetary policy of both countries is dictated by the
Belgian Central Bank and exchange regulations are overseen by a
joint agency. The two were close to dismantling the union at least
twice (in 1982 and 1993) - but relented.

Betting Horse Racing Spread II. The Lessons

Low Spread Forex Trading Europe has had more than its share of botched and of successful
currency unions. The Snake, the EMS, the ERM, on the one hand - and
the British Pound, the Deutschmark, and the ECU, on the other.

Sport Spread Betting The currency unions which made it have all survived because they
relied on a single monetary authority for managing the currency.

Trading Spread And Seasonals Counter-intuitively, single currencies are often associated with
complex political entities which occupy vast swathes of land and
incorporate previously distinct -and often politically, socially,
and economically disparate - units. The USA is a monetary union, as
was the late USSR.

Arbitrage Spread Trading All single currencies encountered opposition on both ideological and
pragmatic grounds when they were first introduced.

Betting Guide Insider Sports The American constitution, for instance, did not provide for a
central bank. Many of the Founding Fathers (e.g., Madison and
Jefferson) refused to countenance one. It took the nascent USA two
decades to come up with a semblance of a central monetary
institution in 1791. It was modeled after the successful Bank of
England. When Madison became President, he purposefully let its
concession expire in 1811. In the forthcoming half century, it
revived (for instance, in 1816) and expired a few times.

Betting Spread Successful The United States became a monetary union only following its
traumatic Civil War. Similarly, Europe's monetary union is a belated
outcome of two European civil wars (the two World Wars). America
instituted bank regulation and supervision only in 1863 and, for the
first time, banks were classified as either national or state-level.

College Football Betting This classification was necessary because by the end of the Civil
War, notes - legal and illegal tender - were being issued by no less
than 1562 private banks - up from only 25 in 1800. A similar process
occurred in the principalities which were later to constitute
Germany. In the decade between 1847 and 1857, twenty five private
banks were established there for the express purpose of printing
banknotes to circulate as legal tender. Seventy (!) different types
of currency (mostly foreign) were being used in the Rhineland alone
in 1816.

Betting Financial Risk Spread The Federal Reserve System was founded only following a tidal wave
of banking crises in 1908. Not until 1960 did it gain a full
monopoly of nation-wide money printing. The monetary union in the
USA - the US dollar as a single legal tender printed exclusively by
a central monetary authority - is, therefore, a fairly recent thing,
not much older than the euro.

Betting Point Spread On Nfl It is common to confuse the logistics of a monetary union with its
underpinnings. European bigwigs gloated over the smooth introduction
of the physical notes and coins of their new currency. But having a
single currency with free and guaranteed convertibility is only the
manifestation of a monetary union - not one of its economic pillars.

Betting Point Spread History teaches us that for a monetary union to succeed, the
exchange rate of the single currency must be realistic (for
instance, reflect the purchasing power parity) and, thus, not
susceptible to speculative attacks. Additionally, the members of the
union must adhere to one monetary policy.

Super Bowl Betting Spread Surprisingly, history demonstrates that a monetary union is not
necessarily predicated on the existence of a single currency. A
monetary union could incorporate "several currencies, fully and
permanently convertible into one another at irrevocably fixed
exchange rates". This would be like having a single currency with
various denominations, each printed by another member of the Union.

Betting Fan Football Guide What really matters are the economic inter-relationships and power
plays among union members and between the union and other currency
zones and currencies (as expressed through the exchange rate).

Spread Betting Uk Usually the single currency of the Union is convertible at given
(though floating) exchange rates subject to a uniform exchange rate
policy. This applies to all the territory of the single currency. It
is intended to prevent arbitrage (buying the single currency in one
place and selling it in another). Rampant arbitrage - ask anyone in
Asia - often leads to the need to impose exchange controls, thus
eliminating convertibility and inducing panic.

Betting Betting Fan Football Monetary unions in the past failed because they allowed variable
exchange rates, (often depending on where - in which part of the
monetary union - the conversion took place).

Betting Company Germany In A uniform exchange rate policy is only one of the concessions
members of a monetary union must make. Joining always means giving
up independent monetary policy and, with it, a sizeable slice of
national sovereignty. Members relegate the regulation of their money
supply, inflation, interest rates, and foreign exchange rates to a
central monetary authority (e.g., the European Central Bank in the
eurozone).

Ig Index Spread Betting The need for central monetary management arises because, in economic
theory, a currency is never just a currency. It is thought of as a
transmission mechanism of economic signals (information) and
expectations (often through monetary policy and its outcomes).

Betting Guide Practical It is often argued that a single fiscal policy is not only
unnecessary, but potentially harmful. A monetary union means the
surrender of sovereign monetary policy instruments. It may be
advisable to let the members of the union apply fiscal policy
instruments autonomously in order to counter the business cycle, or
cope with asymmetric shocks, goes the argument. As long as there is
no implicit or explicit guarantee of the whole union for the
indebtedness of its members - profligate individual states are
likely to be punished by the market, discriminately.

Betting Blogspot Com Site But, in a monetary union with mutual guarantees among the members
(even if it is only implicit as is the case in the eurozone), fiscal
profligacy, even of one or two large players, may force the central
monetary authority to raise interest rates in order to pre-empt
inflationary pressures.

Learn Spread Betting Interest rates have to be raised because the effects of one member's
fiscal decisions are communicated to other members through the
common currency. The currency is the medium of exchange of
information regarding the present and future health of the economies
involved. Hence the notorious "EU Stability Pact", recently so
flagrantly abandoned in the face of German budget deficits.

Financial Spread Trading Monetary unions which did not follow the path of fiscal rectitude
are no longer with us.

Football Betting Spread In an article I published in 1997 ("The History of Previous European
Currency Unions"), I identified five paramount lessons from the
short and brutish life of previous - now invariably defunct -
monetary unions:

Commodity Spread Trading 1.. To prevail, a monetary union must be founded by one or two
economically dominant countries ("economic locomotives"). Such
driving forces must be geopolitically important, maintain political
solidarity with other members, be willing to exercise their clout,
and be economically involved in (or even dependent on) the economies
of the other members.
2.. Central institutions must be set up to monitor and enforce
monetary, fiscal, and other economic policies, to coordinate
activities of the member states, to implement political and
technical decisions, to control the money aggregates and seigniorage
(i.e., rents accruing due to money printing), to determine the legal
tender and the rules governing the issuance of money.
3.. It is better if a monetary union is preceded by a political
one (consider the examples of the USA, the USSR, the UK, and
Germany).
4.. Wage and price flexibility are sine qua non. Their absence is
a threat to the continued existence of any union. Unilateral
transfers from rich areas to poor are a partial and short-lived
remedy. Transfers also call for a clear and consistent fiscal policy
regarding taxation and expenditures. Problems like unemployment and
collapses in demand often plague rigid monetary unions. The works of
Mundell and McKinnon (optimal currency areas) prove it decisively
(and separately).
5.. Clear convergence criteria and monetary convergence targets.
The current European Monetary Union is far from heeding the lessons
of its ill fated predecessors. Europe's labour and capital markets,
though recently marginally liberalized, are still more rigid than
150 years ago. The euro was not preceded by an "ever closer
(political or constitutional) union". It relies too heavily on
fiscal redistribution without the benefit of either a coherent
monetary or a consistent fiscal area-wide policy. The euro is not
built to cope either with asymmetrical economic shocks (affecting
only some members, but not others), or with the vicissitudes of the
business cycle.

Nfl Betting Spread This does not bode well. This union might well become yet another
footnote in the annals of economic history.

Advanced Commodity Spread ==============================================================
AUTHOR BIO (must be included with the article)

Betting Exchange Spread Sam Vaknin ( http://samvak.tripod.com ) is the author of Malignant
Self Love - Narcissism Revisited and After the Rain - How the West
Lost the East. He served as a columnist for Central Europe Review,
PopMatters, Bellaonline, and eBookWeb, a United Press International
(UPI) Senior Business Correspondent, and the editor of mental health
and Central East Europe categories in The Open Directory and
Suite101.

Stock Spread Trading Until recently, he served as the Economic Advisor to the Government
of Macedonia.

Online Spread Betting Visit Sam's Web site at http://samvak.tripod.com

Complete Guide Spread Trading

Betting Horse Racing Spread Sam Vaknin ( http://samvak.tripod.com ) is the author of Malignant
Self Love - Narcissism Revisited and After the Rain - How the West
Lost the East. He served as a columnist for Central Europe Review,
PopMatters, Bellaonline, and eBookWeb, a United Press International
(UPI) Senior Business Correspondent, and the editor of mental health
and Central East Europe categories in The Open Directory and
Suite101.

Low Spread Forex Trading Until recently, he served as the Economic Advisor to the Government
of Macedonia.

Sport Spread Betting Visit Sam's Web site at http://samvak.tripod.com

Trading Spread And Seasonals


Contact him at http://samvak.tripod.com

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