Encrypted currency is a hedge.
Editor’s note: This article comes from the strategic cooperation blockchain media “Odaily Planet Daily” (Public ID: o-daily, < a href="https://download.odaily.com/">APP Download)
This article is from Medium , Odaily Planet Daily Translator | Moni
Recently, the demand for stable currencies linked to local currencies has grown.
It is undeniable that for some countries with weak legal tender currencies, local residents may prefer to choose stable currency because it is easier to circulate in mobile applications and decentralized exchanges, and some companies even use stable currency to hedge The risk of high volatility in the local currency.
Here, StarCraft (WeChat: o-daily) will come with everyone to see what is causing this happening.
Basic knowledge of strong and weak currencies
When the value of a currency declines over time relative to the value of other currencies, it becomes a weak currency and is weak in the money market. The emergence of weak currencies is often accompanied by some common market characteristics, such as inflation, current account deficits, or import levels that are much higher than export levels.
In addition, other reasons for currency weakness may also be attributed to country-specific variables, such as poor governance, and of course, depending on the currency’s trading performance with other currencies and commodities.
In determining the strength of the currency, there are three most important factors that need to be taken into account: interest rates, economic policies, and stability.
1. High interest rates are more attractive to investors and will increase the strength of the currency itself.
2. Implementing strict fiscal discipline and economic policies that inhibit inflation can also strengthen the currency.
3. Social stability also attracts investment, but it requires a firm commitment to the rule of law and consistent implementation of constructive policies.
Stability may be more important than the overall strength of the currency. Because a strong currency will make export costs higher, relatively speaking, weaker currencies will make import costs higher, so ensuring low volatility and maintaining currency stability are key.
If a country’s economic performance is very bad, its monetary value will usually be removed, but this is not always the case. Sometimes, the currency of a country seems to be strong, probably because they have implemented control measures in the process of inflation.
Strong and weak currency rankings
If we rank strong currencies, many people may be as surprised as Stars (o-daily), because contrary to popular belief, the dollar is not the world’s most powerful currency. In fact, in the global currency rankings updated in January 2019, the US dollar was only ranked ninth. The top eight were Kuwaiti Dinar, Bahraini Dinar, Omani Rial, Jordanian Dinar, Sterling. , the Cayman Islands dollar, the euro and the Swiss franc, the tenth is the Canadian dollar.
The five weakest currencies are: Iranian Rial, Vietnamese Dong, Indonesian Rupiah, Guinean Franc and Lao Kip.
When reading here, I believe that many community partners and Star Jun (O-daily) have raised doubts: Is the Venezuelan sovereign Bolivarian currency not the weakest currency? In fact, Venezuelan sovereign Bolivar is no longer the ten weakest currency in the world, because they have re-adjusted their denominations – a measure often used by the government to deal with ultra-high inflation.
A closer look at the weak currency
The monetary ranking will certainly not be the same, so if you think about the currency from the perspective of “cryptocurrency”, the assessment of strengths and weaknesses may be more likely to see which currencies are more vulnerable.
The well-known US financial blog Zeroohedge reported last year that Societe Generale (SocGen) has developed a “total vulnerability and net vulnerability” loyalty card to assess which currency is the most risky in the future. In this assessment model, taking into account factors such as fiscal deficits, short-term capital flows, short-term external debt, foreign exchange-denominated bonds, overseas bond ownership, and reserve adequacy ratios, the five most vulnerable currencies in the world are finally evaluated:
1. Turkish Lira
2. South African Rand
3. Malaysian Ringgit
4. Indian Rupee
5. Indonesian Shield
In fact, when we analyze the strength of the currency, the market may not be the main factor in some cases.
For example, during the five months from August 2015 to January 2016, global risk assets experienced a sharp sell-off. At that time, except for the yen, which rose by 6.6%, other major currencies and markets fell sharply.For example, the euro fell 1.2%, the Swiss franc fell 2%, the pound fell 9%, and the ruble fell 22.6%.
But it’s worth noting that the best-performing currency in the world during the five-month period turned out to be bitcoin, and its price rose from $284 in August 2015 to $378 in January 2016, an astonishing 33. %. People have therefore raised a question:
Can cryptocurrency play a role when the currency weakens? What benefits can they bring?
Cryptographic currency is a hedge.
One way for Bitcoin and other cryptocurrencies (such as stable currencies) to connect with traditional financial markets is that they can become “candidates” for people’s portfolio diversification. In short, people think that cryptocurrency is an asset that is “unrelated” to traditional currencies, so if it is included in its own portfolio, it can be used as a hedge against recession.
Recently, Fidelity Investments announced the inclusion of cryptocurrencies in its customers’ investment choices, which also proves that the idea that cryptocurrencies are a hedge is gaining popularity. However, there is another cryptocurrency that can be used to mitigate the negative effects of a weak currency – it is a stable currency.
Stabilizing coins is another way out
At this stage, the use of stable currency as a means of reducing the risk of a weak currency does not seem to have attracted the attention of the mainstream media.
If you want to use stable currency to circumvent the risk of holding a weak currency, there is an easy way: First, you can use cash to buy bitcoin in some cash trading networks and then convert it to other local based A stable currency of currency, or a cryptocurrency such as bitcoin, which has a value storage trait.
For example, if you currently have a Philippine Peso (PHP), simply convert the cash to stable.PHP and then trade to BitUSD.
One of the great benefits of using stable currency as a way to reduce the risk of a weak currency is that you don’t want to worry about the impact of the regular currency exchange rate. More importantly, there are many options for stabilizing coins. If you don’t fully believe that BitUSD can maintain value for some reason, you can also use stable coins linked to other legal tenders, such as BitJPY, sparkex.HKD, and BitEUR. , BitGold, you can even put some of your assets directly intoBitcoin or Ethereum.
To some extent, Stabilizing Coins gives us the opportunity to create a fully functional Forex market that helps people escape from weaker currencies more easily without paying expensive transaction fees or worrying about capital controls, which is also a stable currency that can be used One of the best ways to deal with weak currencies.