Currency. The concept of currency has several shades. Sometimes the currency is called the organization of the monetary system existing in a particular country; for example, they say: gold, silver, paper Currency. With this understanding of currency, this name is not associated with any idea of the composition of cash circulating in the country. So, it is possible, for example, a gold currency without gold circulation. This means that the monetary unit in this country is denominated in gold, and the gold coin is legal tender for unlimited amounts, but paper money is the actual instrument of circulation. In other cases, Currency refers to the totality of money of a certain state (or union of states), considered as a certain unity. Such, for example, is the meaning of the concept of currency when it comes to Russian, Austrian, and other currencies. With this use of the term currency, it includes only the country's cash, but not credit documents circulating in it (bills, bonds). Sometimes a currency is understood simply as a specific amount of money; in this sense they say, for example, about the "Currency of a bill." However, most often the term currency is used to refer to foreign cash and credit documents that appear in a foreign country as a "commodity" on the stock exchange. In normal times, the need for foreign means of payment is entirely determined by the need to make payments in the respective states (for example, for goods imported from there or as a contribution of interest on loans concluded abroad). Only when upset monetary system the country's money may serve as an object of speculative play in other states. The price of the currency of one country in foreign countries is determined by the exchange rate (see). Under gold circulation, the fluctuations of these rates are set limits by the so-called golden points (see Golden points); moreover, a special task of motto policy (see motto policy) is to eliminate fluctuations even within these limits and to completely stabilize exchange rates. On the other hand, with a disordered paper money system, exchange rates become unstable, and this is often used abroad for speculative purposes. Moreover, foreign currency has now acquired the significance of a store of value. With a stable monetary unit and a normally functioning credit apparatus, savings are placed in banks, savings banks, etc. When the operation of this apparatus fails, archaic forms of savings (“thesaurization”) are resurrected: monetary treasures are hidden in caskets, capsules, boxes, stockings, and etc. At the same time, preference is given to stable values: a gold coin, foreign currency, etc. Of course, not every foreign currency is suitable for this purpose at the present time. There are stable (dollar, pound sterling, Swiss franc, etc.) and falling (Polish mark) Currencies. Thus, in countries with a disordered money circulation, an artificially heated demand for foreign currency is created, and the state authorities have to take care of a certain influence on the foreign currency market in order to prevent speculation based on interest in foreign currency on the part of holders of free funds, to inflate exchange rates and to drop the value of the domestic currency. A favorite method of such influence is the creation of a currency monopoly, i.e., granting the exclusive right to acquire and alienate the currency to a certain organization, which usually includes the most reputable banks, under the supervision and guidance of the state. Such an organization sets at the same time the prices of foreign currency. However, these official rates of currencies are controlled by the world money market, as a result of which a discrepancy between them and quotes of foreign exchanges is possible. One of the most important tasks of monopolizing the trade in Currency is to eliminate the possibility of individuals acquiring the Currency for the purpose of speculation or the investment of accumulated capital. This trend was especially clearly manifested, for example, in the German decrees against speculation in foreign currency of October 12 and 27, 1922. now cancelled. These decrees prohibited, under pain of imprisonment and monetary penalties, the conclusion of transactions in domestic circulation and even the pricing of goods in retail trade in foreign currency. The acquisition of the Currency was allowed only for persons engaged in foreign trade, and had to be authorized every time by special control instances (Prufungsstellen). The purchase of foreign currency was considered permissible to pay for imported goods, to cover the payments associated with this import (freights, insurance, etc.), as well as to cover obligations that were to be paid in foreign currency. During the war, an attempt was made in Russia to organize a motto monopoly, but this experience turned out to be rather unsuccessful. The newest currency legislation was originally aimed at withdrawing all currency from free circulation and concentrating it in the State Bank; but a number of decrees (especially the decree of February 15, 1923) legitimize transactions in foreign currency and thus deviate from the idea of the State Bank's motto monopoly. Turnovers with the Currency are made in the stock departments of commodity exchanges.
It should also be noted the possibility of indirect and even direct participation of foreign currency in money circulation. A number of emission laws (including our decree of October 11, 1922 on the issuance of chervonets - see this word) allow the inclusion of a certain amount of foreign currency in the metal cover of bank notes. During civil war there have been attempts to create paper money with a stable exchange rate by providing them with an exchange for hard foreign currency. Finally, it is possible to directly circulate foreign currency as an instrument of circulation on foreign territory. Since the "monetary regalia" is considered the exclusive privilege of the national state power, such the appearance of foreign currency in circulation is a sign of diminishing state dignity. This was the nature, for example, of the circulation of German and Austrian paper money on the territory of Ukraine during its occupation by the Central Powers.
It is quite difficult to find any single clear answer to this question, so I will offer for your judgment and choice several options for determining the currency market at the same time. Currency is:
- A set of various economic relations that are formed between various market participants during the implementation of credit and deposit or conversion operations in foreign currency.
- The center of financial concentration of operations for the purchase or sale of various securities and foreign currencies, according to the laws of supply and demand.
- The set of representatives involved in the implementation of foreign exchange transactions - banks, brokerage houses, investment companies, stock exchanges, etc.
- Integration of various communication systems that provide communication between banks different countries engaged in the implementation of international currency transactions.
- Sphere of distribution.
- International - combines all the currency markets of the world, which are interconnected by a system of various communications.
- Domestic - the foreign exchange market of a certain state, which operates exclusively within the selected state.
- Attitude to currency restrictions.
- Free.
- Not free.
Applied exchange rates.
The presence of one mode. A foreign exchange market that uses floating exchange rates, the quotes of which are set during exchange trading. For example, the exchange rate of the Russian ruble is set using fixing. carried out by the Central Bank of the Russian Federation. The presence of a dual mode. A market in which fixed and floating rates are applied at the same time. The use of such a system allows states to regulate the movement of capital from the national market to the international market for loan capital and vice versa. This measure makes it possible to control the influence of the international market on the economic conditions of a certain state.degree of organization.
market. The market represented by the currency exchange. The task of the currency exchange is to organize trading in foreign currency and securities. . A market organized by a network of dealers who may or may not be members of a currency exchange. Advantages of the OTC market:- Low costs for foreign exchange transactions.
- Higher speed of making calculations than on the exchange market.
- "Euromarkets".
- Eurocurrency markets.
- Eurobond markets - debt relations for obligations denominated in Eurocurrency.
- Eurodeposit markets - formation of relations on deposits in banks of foreign countries in funds circulating in the Eurocurrency markets.
- Eurocredit markets – granting loans to foreign banks denominated in Eurocurrency.
Stay up to date with all important United Traders events - subscribe to our
The term "currency" is used in two senses: firstly, it is the monetary unit of the state; secondly, these are banknotes of foreign states, as well as credit and payment documents denominated in foreign monetary units and used in international settlements (foreign currency).
In finance and financial law, in official and everyday vocabulary, the term "currency" is most often used in the second meaning. In the sources of financial law, the above definition of currency is specified in relation to the objects covered by the concept of "currency".
To characterize the ratio of domestic and foreign currencies, the following concepts are used: "irreversible (non-convertible) currency", used within only one state for foreign currency and is, thus, a means of payment, and in the international market, "partially convertible (convertible) currency" is used not in all, external currency transactions and in the relations of not all subjects.
According to Art. 1 Law, currency Russian Federation- this is:
a) in circulation, as well as withdrawn or withdrawn from circulation, but subject to exchange, rubles in the form of bank notes (banknotes) of the Central Bank of the Russian Federation and coins;
b) funds in rubles on accounts with banks and other credit institutions in the Russian Federation;
c) funds in rubles on accounts in banks and other credit institutions outside the Russian Federation on the basis of an agreement concluded between the Government of the Russian Federation and the Central Bank of the Russian Federation by the relevant authorities of a foreign state on the use on the territory of this state of the currency of the Russian Federation as legal tender " .
Analysis of the above definition allows us to note three main characteristics of the currency of the Russian Federation:
1. The national currency unit is the legally established monetary unit of the state - the ruble. Thus, according to its essential characteristic, the currency is money, with all the properties of the universal equivalent inherent in them. At the same time, currency and money are not identical concepts. The various formulations contained in scientific literature, indicate a specific feature of the currency as a form of money: its "displacement", focus on the world market, servicing international economic relations. "The currency becomes the money that is recognized by the world community as universal equivalents" It should be noted that the Russian ruble as the basis of the monetary system of the Russian Federation was legally put into circulation in 1993 and replaced the ruble former USSR. As a result, the monetary and currency systems of Russia became isolated from the monetary and currency systems of the former USSR.
2. According to the wording of the Law, it is not real money that acts as a currency, but its functional forms: banknotes, coins, account entries. Recall that the listed functional forms of money differ from real money(for example, gold and silver coins) by the fact that they do not have their own value, but serve only as a symbol, a sign of value. Real money - gold or silver coins - had the value of the corresponding precious metal of which they consisted.
3. Finally, the definition of the Law contains two different degrees of "materialization", "substantiality" of the currency: on the one hand, traditional banknotes and coins, on the other hand, account entries.
The law contains the wording of foreign currency, which means:
a) banknotes in the form of banknotes, treasury bills that are in circulation and are legal tender in the relevant foreign state or group of states, as well as banknotes withdrawn or withdrawn from circulation, but subject to exchange;
b) funds on accounts in monetary units of foreign states and international monetary or accounting units (Article 3).
The above three characteristics of the currency of the Russian Federation are also applicable to foreign currency. It should also be noted that an international unit of account is an artificial currency unit, which is a conditional scale used to measure international debt obligations, payments, etc. For example, since 1979 there has been a European currency unit - the ECU.
Term "currency" applied in three ways:
- Currency is the currency of that particular country.
- Currency These are foreign monetary funds and units of account.
- Currency- these are international units of account such as "euro", SDR, etc.
Since the task is to promote development, any national currency must have external and internal convertibility, i.e., the possibility of converting into the currencies of other states. Convertibility determines the degree of currency liquidity in international financial markets. Thus, currency convertibility characterizes the quality of the currency. Depending on the degree of convertibility, three groups (classes) of currencies can be distinguished.
1. Freely convertible currency(SLE). Such a currency is freely and without restrictions exchanged for other foreign currencies, i.e. hard currency has full external and internal convertibility.
The scope of hard currency exchange extends both to current transactions (transactions related to the implementation of export-import of goods and services), and to transactions related to the movement of capital, for example, obtaining external loans or foreign investment.
Thus, we can say that a freely convertible currency is the currency of the country in which there are no legal restrictions on any transactions with it.
Freely convertible currencies are the American dollar (USD), British pound sterling (GBF), Swiss franc (CHF), etc.
2. Partially convertible currency(PCI). Such currencies include the national currencies of those countries in which currency restrictions are applied to residents, as well as for certain types of exchange transactions. For example, the Russian ruble is partially convertible.
3. Non-convertible (closed) currency(NKV). This is a national currency that functions only within a given country and is not exchanged for foreign currencies.
The rank of the currency is determined by the International Monetary Fund.
In addition, in international trade currency units are used that exist only in non-cash form - clearing currencies.
Clearing currencies- These are currency units of account that exist only in non-cash form and are used only by the countries participating in the payment agreement when making mutual settlements for goods and services supplied.
In the global economy, there is the concept of reserve currencies.
Reserve currency- These are the national monetary funds of the leading countries participating in world trade, which are used for international settlements in foreign trade operations and in determining world prices.
Historically, the original role of the reserve currency was performed by the British pound sterling. This was natural, because industry and trade were actively developing in England. In addition, England had many colonial possessions, where the trade exchange was based on the pound sterling. However, later, due to the rapid development of the United States, their national currency (dollar) began to rapidly replace the pound sterling, acting as the main reserve currency. The role of the reserve currency (USD) was finally assigned to the US dollar in 1944 at the Bretton Woods Conference.
The US dollar is currently the world's main reserve currency. Most of the international settlements are carried out in this currency, world prices for many commodity groups are fixed. In addition, all world statistics are based on USD.
Great influence on international economic relations renders the exchange rate. It should be noted that at present the monetary policy of the state can greatly influence the exchange rate. In order to maintain the national currency, the central bank of any country can conduct foreign exchange interventions.
Currency interventions- this is the impact on the exchange rate of the national currency by buying or selling a significant amount of foreign currency government bodies. For example, the Central Bank of Russia (CBR), in order to strengthen the ruble, can sell part of its foreign exchange reserves on the foreign exchange market.
Exchange rate
Currency parity
Money fulfills the measures of value and means of circulation only within the limits of the corresponding state. Outside of these functions, purchasing power is determined by comparison with foreign currencies, and the external value of money is expressed in units of foreign currencies. When determining the external value of money, the following problems arise: the determination of the currency parity by state bodies; formation of rates in the foreign exchange markets.
Currency parity- this is a legally established ratio between two currencies, which is the basis of the exchange rate. In modern conditions, currency parity is established on the basis of special drawing rights (SDRs). The SDR is the international settlement currency used by IMF member countries.
- the ratio between the monetary units of various countries in terms of their purchasing power to a certain set of goods and services - certifies that on the world market the same product must have the same price in all countries if it is calculated in the same currency. But in the world market, goods are sold and bought for different money, so there must be a certain relationship between currencies. This ratio is expressed by the Kessel formula:
For example, 1 dollar = 1.5 euros, or 1 euro = 0.75 dollars, which means that you can buy the same amount of useful products for both 1 dollar and 1.5 euros.
Both parities are used in setting official exchange rates.
exchange rate is the ratio between two currencies or is the price of one currency expressed in terms of another currency.
The nominal exchange rate is the actual price of one currency in units of another currency. For example, the price of $1 for Russian market in January 2002, it was equal to 30 rubles, and the price of one ruble was approximately 0.33 US dollars.
There are the following types of exchange rates:
- fixed exchange rate- this is the official ratio between the two currencies, established by law;
- floating- is set at the auctions on the currency exchange;
- cross course- this is the ratio between two currencies, which follows from their exchange rate against a third currency;
- current- this is the rate of cash, i.e. cash transaction. According to it, settlements are made within two days;
- forward or the rate of a futures transaction is the rate for calculating a foreign exchange (forward) contract after a certain time after the conclusion of the contract.
The value of the currency is expressed in price, which is determined by the value of the currency in relative units of another currency - national or foreign. The price of a foreign currency is called exchange rate.
To designate currencies when concluding transactions, apply ISO- currency codes. An individual currency code consists of three letters: the first two letters indicate the country, the third - the currency. Examples of ISO codes for some currencies are presented in the table.
Exchange rates are displayed by the pair of currencies involved in the transaction, such as GBP/USD or USD/CHF, where GBP/USD indicates how many US dollars are in 1 British pound (how many US dollars can be bought for 1 British pound), and USD/CHF shows how many Swiss francs are in 1 US dollar (how many Swiss francs can be bought with 1 US dollar).
The currency that is bought or sold, i.e. traded, is called traded currency, and the currency that serves to evaluate the traded currency is quote currency. So, when displaying a currency pair, the first of the indicated currencies is the traded currency, and the second is the quote currency.
Usually, when denoting the exchange rate, the foreign currency acts as the traded currency, and the local currency as the quote currency. This quote is called straight, or appraisal: the price of a certain amount of foreign currency is expressed in variable national units. Such a quotation system is used, in particular, in Switzerland, Japan, Canada. For example, the quote USD/JPY106.4 shows that there are 106.4 Japanese yen in 1 US dollar.
Indirect (reverse) exchange rate quote is the price of a standard unit of local currency, expressed in variable units of foreign currency.
The system of indirect quotations of their currency, in particular, is used by Great Britain and Australia (GBP/USD and AUD/USD). An indirect quote is also used when calculating the euro exchange rate (EUR/USD).
For example, the quote EUR/USD1.23 shows that 1 euro contains 1.23 US dollars.
In interbank currency trading, the bank that quotes the currency usually quotes the bid and ask rates. The buying rate is designated as the Bid rate, the selling rate - Offer(Ask).
With a direct quote, the Bid rate is the rate at which banks buy the traded (foreign) currency and sell the national one. The Offer(Ask) rate is the rate at which the bank sells the traded currency and buys the national one. The amount by which the Bid rate differs from the Offer(Ask) rate is called spread.
The largest volume of transactions made in the foreign exchange market falls on spot transactions. Deals spot all are called currency operations, payments for which are made on the second banking day after the conclusion of the transaction. If this day falls on a weekend, the due date (value date) is the next business day. The rate at which spot transactions are concluded is called spot rate.
An example of calculating the value date is shown in the table.
Cross course- this is the ratio between two currencies, which is calculated based on their exchange rate in relation to the rate of a third currency. As a rule, when calculating cross-rates, the US dollar is the third currency. This is due to the fact that the US dollar is not only the main reserve currency, but also the transaction currency in most foreign exchange transactions.
As an example of using cross rates, you can calculate the EUR/YPJ rate using the EUR/USD and USD/YPJ rates:
Currency quote
The process of setting the exchange rate is called currency quotation.
Quote types:
Depending on the location of the exchange, on the country where the currency transaction takes place, there are:1. direct currency quote. With it, the cost of a unit of foreign currency is expressed through a certain amount of the national currency.
- 1 unit currencies = to units. national currency.
- 1 dollar = 31 rubles.
If the transaction is made in any country;
2. Indirect currency quote. With it, the cost of a unit (i.e., 1 piece) of a national currency is expressed in a certain amount of a foreign currency.
- 1 unit of national currency = X units of foreign currency.
- 1 ruble = 1/28 dollars.
The same quote, depending on the country where the transaction is made, can be direct and indirect.
The exchange rate is quoted in two directions:- buyer's rate- in accordance with this rate, the bank will buy foreign currency in exchange for national;
- seller's rate- in accordance with this rate, the bank sells foreign currency in exchange for national.
With a direct quote, the seller's rate is usually higher than the buyer's rate.
With indirect quotation, the buyer's rate is higher than the seller's rate.
If the quotation of two currencies is carried out by calculating through a third currency, then such a quotation is called a cross rate.
Currency convertibility is the ability to exchange national currency for a foreign one. It happens:- full convertibility— exchange without restrictions (dollar);
- incomplete convertibility— the exchange is limited (ruble).
There are no restrictions on the domestic market (purchase of foreign currency for rubles).
In relations outside the country, the Central Bank sets restrictions.
The global financial "stresses" of the last few years - an oversupply in the markets of energy resources and raw materials, the fall of the Chinese stock market and geopolitical tensions, once again reminded us of the value of such financial instruments as "safe haven" currencies. And while the state of affairs in the economy of many countries of the world leaves much to be desired, it will not be superfluous to once again consider the value of these financial instruments and the mechanism for their use.
What is a safe haven currency?
A safe-haven currency is the national currency of an advanced economy which, thanks to the financial and general economic policy the state of its issuer is less exposed to the risks of losing its value than other world currencies.
Due to these advantages, safe-haven currencies are often used as reserve currencies by most countries in the world. Therefore, the safe-haven currency is identified with the concept of "reserve currency", although this is not always the case (more on this below).
In turn, the reserve currency is a generally recognized monetary unit of a state with a developed economy, which is accumulated by the central banks of various states in their own foreign exchange reserves to ensure foreign economic settlements, as well as regulate the exchange rate of their national currency in the financial market.
List of reserve currencies of the world
Currently, in the world economy, the following currencies can be distinguished, which are most often used for the accumulation of foreign exchange reserves by the Central banks of various states:
- US dollar (USD)
- Japanese yen (JPY)
- euro (EUR)
- Swiss franc (CHF)
- pound sterling (GBP)
All of them are released into international circulation developed in economic terms by states, are generally accepted, freely convertible, listed on the stock exchange and are often used to create reserve savings by Central Banks. But not all of them are considered safe-haven currencies. Since, as you yourself know, the exchange rate of some of them is quite volatile and unpredictable, such as the exchange rate of the pound sterling or the US dollar, and their presence in the gold and foreign exchange reserves of states is explained by the fact that they are simply necessary for the country's foreign economic activity.
List of safe-haven currencies
Currently, safe-haven currencies are considered to be:
- Japanese yen (JPY)
- Swiss franc (CHF)
- euro (EUR)
Why are these currencies considered safe-haven currencies? Everything is explained by the economic and financial policies of the states of their issuers. You can talk about the financial and economic potential of Japan, Switzerland or Europe for hours and this is not the topic of this article. But it is precisely thanks to the developed economy of these states and the diversification of risks within it that these currencies are safe havens for the capital of stock traders and investors.
And the most important thing that distinguishes these safe-haven currencies from other world reserve currencies is that the yen, the Swiss franc and the euro are precisely those financial instruments of the foreign exchange market in which stock investors and traders "escape" from financial risks (by purchases of these currencies) during the ongoing collapses of financial markets, the release of important economic news and other exchange "stresses".
As mentioned above, the safe-haven currency is used by stock traders and investors in order to preserve their capital and "sit out" during stock exchange stresses, which can be caused by a number of foreseen and unforeseen circumstances:
– the release of important economic news (changes in discount rates, publication of data on GDP, unemployment, inflation, etc.). Yes, high-frequency traders use such circumstances to raise capital, but institutional investors who invest in value avoid them.
- the collapse of the markets (the most successful example is the market for energy resources or raw materials, whose assets have fallen in price by 3-4 times over several years. What would have happened to the funds of investors if they had not withdrawn them from these markets in time to safer assets??)
- cataclysms, terrorist attacks, political stresses that can lead or have led to sharp market fluctuations.
In the event of any of the above factors, safe-haven currencies are often used by participants in exchange trading in order to preserve their capital, since:
- The medium-term and long-term safe-haven currencies are always in growth or in a horizontal channel (Japanese yen and Swiss franc).
- The financial system of the state that issued them is diversified from the inside (the European Union is a community of 28 states, which means that the value of the euro is comparable to the investor's portfolio, which includes 28 financial instruments at once).
- The central banks of the states in which safe-haven currencies are “registered” regulate the value of their currencies on the world market.
- Safe-haven currencies are highly liquid and can be bought or sold at any time on the currency exchange.
Thus, by purchasing a safe-haven currency, investors and traders significantly reduce the risk of capital loss than if they left their funds in a risky asset during a market crash or a similar situation.