Wednesday, September 29, 2004

When you're young and naive and taking introductory economics classes, you might actually believe that money is primarily a medium of exchange. Sure, it's also a store of value, but so are lots of other things: gold, land, cattle, houses, capital equipment, gems, etc. But without money, good luck on that whole trade thing.

Unfortunately, global finance capital throws this entire logic right out the window.
Trading on the world's foreign exchange markets has leapt to a record $1,900bn a day, driven by renewed interest in currencies as an asset class and the return of hedge funds specialising in currency bets.

Turnover in currency and interest rate derivatives sold by banks also soared to new record levels, according to a three-yearly survey by the Bank for International Settlements.

The rapid growth in financial market transactions - far in excess of the growth in world trade - is a sign of growing integration of global capital markets and increasingly sophisticated risk management by companies and investors.
According to UNCTAD, in 2003 global trade totaled around $9.2 trillion. That means that the world could do all the currency trading it needs to finance all the exchange of goods and services across borders in under 5 days. The other 360? The devil makes work for idle hands . . .

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