History Of Political Economy

You can say that political economy emerged with mercantilism in the 16th century. This doctrine posited that countries became richer as they accumulated the greater amount of precious stones.

Political economy in the 17th to 20th century

Towards the end of the 17th century, Physiocracy was born. This, in response to mercantilism, claimed that nature, especially agriculture, was the source of wealth.

Later, in the 18th century, Adam Smith emerged, who focused on human labor as a source of wealth. His general recommendation was that the state let the agents pursue their own economic interests individually.

Then, in the 19th century, came Karl Marx and Friedrich Engels, who focused on the distribution of economic surpluses. Marx specifically refers to a surplus appropriated by the capitalists and generated by the workers.

Finally, one can say that there is a neoclassical political economy that emerged between the late 19th century and the early 20th century.

How Politics and Economy Influence Forex Rates

The foreign exchange market is the world’s largest and most liquid market for trading international currencies. It is open 24 hours a day, 7 days a week, 365 days a year. The forex market has grown in importance as more countries have adopted floating exchange rates after World War II.

The forex market is an international market where one currency is traded for another. The foreign exchange rate, also known as the forex rate, is the rate at which one currency can be exchanged for another. The politics of forex are a factor that influences the foreign exchange rates. The economic indicators and currency rates are factors that influence the economics of currencies.

Forex brokers are there to help you place your trades. They are companies that offer a platform for people to trade currencies. They are the middleman between the traders and the banks. Before you decide on placing a trade, you will have to decide on the best broker to meet your needs. Read about top forex brokers review to help you decide on the best forex broker for you.

The Economic Calendar in Forex

In simple terms, the Forex Economic Calendar is a calendar that displays significant economic events that occur around the world. For example, a country’s interest rate decision (affecting the currency), a country’s crude oil inventories (affecting oil prices), and a country’s employment situation (like the NFP in the US, affecting the US dollar).

The economic calendar is an extremely important tool in trading as it points us in the right direction. This allows us to understand when something may happen to the assets involved and how important the event could be to us as we trade.

Factors influencing foreign exchange rates: politics, market, and manipulation

The main factors influencing foreign exchange rates are as follows:

  • Political decisions and special events. Most events on the economic calendar are the result of political decisions, such as changing the central bank’s interest rate or adjusting the minimum wage. These decisions can have a major impact on a currency’s price. There are also major events, such as wars between two countries. This could lead to shifts in supply and demand for certain assets and currencies, which in turn opens up trading opportunities for you!
  • Natural supply and demand. The forex market (and pretty much every market) is driven by sellers (supply) and buyers (demand). Each time supply or demand increases (or decreases), prices move accordingly. So it’s up to us traders to determine why changes in supply or demand are occurring, how that affects the market, and how we make trading decisions based on it.
  • Market manipulation. No market, no matter how large, can escape manipulation – not even the forex market. If a giant bank wants to boost currency prices, it will find a way to do it. So if we see unexpected movements and strange patterns in forex prices that cannot be explained, it could be a result of market manipulation.

Read also: Foreign Exchange Rates Impacts The Economy

Conclusion: The Impact of Politics and Economy on Forex Trading

Forex trading consists of exchanging currencies for each other and measuring their value. It is the largest and most liquid market in the world and can be traded almost daily. At the end of the day, we are all a part of the forex market – because currency transactions are happening behind the scenes every second!

Forex trading gives you a good insight into the development of a country’s economy, strong currencies are associated with healthy economies, and weak currencies with underperforming economies.

El Salvador President Tests Bitcoin As Second Currency

Bitcoin

 

In June, the parliament of El Salvador allowed the use of Bitcoin as an official second currency. That is great news to those earning Bitcoin through trading (you can also learn how to when you visit https://bitcoin360ai.com/de/).

Now the corresponding law has come into force. But many questions remain unanswered. President Bukele seems to want to test his power rather than promote the financial inclusion of his poor country.

In June, the Chamber of Deputies, dominated by a majority of the ruling Nuevas Ideas party, quickly waved through the law to introduce Bitcoin as the official second currency for El Salvador. The law came into force at the beginning of September. It is a very short legal text with only 17 articles. However, the brevity and the unclear or not formulated procedural rules carry a great risk in such sensitive decisions.

President Nayib Bukele announced his decision to introduce Bitcoin during a conference in the US. The conference participants were experts and lovers of technology and cryptocurrencies. At the same time, El Salvador is one of the poorest countries in Latin America.

In his own country, which is about the size of Hesse, Bukele limits his appearances on the subject of Bitcoin to the medium Twitter, which he prefers. So far, there has been no press conference in which the Salvadoran population has been told how to imagine how to deal with Bitcoin.

President Bukele praises the installation of around 200 Bitcoin ATMs on social media almost as a panacea. How the setting of the exchange rate between Bitcoin and the official national currency US dollar is to work, the law does not specify. It is also concealed that when exchanging Bitcoin into US dollars, 5% fees are charged on the transaction.

Opportunities for financial inclusion

Populist Bukele justifies his decision with the opportunities of financial inclusion and the associated freedom that many people will have if they use Bitcoin to enter the formal economy. Bitcoins also have advantages for withdrawing home transfers from the USA, which account for 20% of GDP. For wallet-to-wallet transactions, the withdrawal in El Salvador would be free of charge, but the sender must also have Bitcoin. The government is trying to make the project palatable to citizens by giving everyone $30 in Bitcoin. To a certain extent, Bukele also seems to have the intention of detaching his country from the controls of the international financial system with the introduction of Bitcoin.

In the future, taxes should be able to be paid with Bitcoins, and every company and every business is obliged by law to accept Bitcoins as a means of payment. An app should be used for this. How this works, however, is still unclear. Training and further education opportunities for entrepreneurs or banks have so far been lacking, but they would be urgently needed. Stakeholders are not necessarily critical of the project but are unsettled by the lack of information and the legal basis.

 

ALSO READ: The Importance of Retail and Wholesale for Growth in a Country

 

It is a very high-risk experiment

Although the charismatic president, in the eyes of many, despite his authoritarian traits, remains certain of the approval of most Salvadorans, the risks of the latest decision seem to clearly outweigh the opportunities.

Bitcoin has a very volatile value. In order to pay taxes or fines, for example, the law would have to set the applicable exchange rate of US dollars in Bitcoin. For loans in Bitcoin, this volatility is also an extreme problem. Whether the established trust fund of 150 million US dollars will be able to cushion the volatility of Bitcoin remains open.

Transactions with Bitcoins are registered, but it is difficult to understand who made them from which device. This lack of transparency provides an optimal breeding ground for money laundering and the establishment of a tax haven. This is also the biggest concern of international institutions such as the World Bank, the International Monetary Fund, and the rating agencies Fitch Ratings and Moody’s. Consequently, it remains to be seen what decision the IMF will make regarding the $1.3 million loan to El Salvador currently under negotiation. It is a very high-risk experiment.

A government test run

The actual motives for Bukele’s decision are assumed to be a possible de-dollarization. That would intensify the confrontation with the US. When in May this year the impeachment of all judges of the Supreme Court and the Attorney General became known as the first decision of the newly elected Chamber of Deputies, which was characterized by a majority of the ruling party, the US called for the preservation of the separation of powers as the basis of a stable democracy.

Bitcoin seems to be a test run of the government to observe how quickly such unclear decisions are accepted by the population. That doesn’t bode well. It is clear that the authoritarian traits of the president, with support in parliament, are becoming increasingly apparent. Obvious resistance did not flare up until September 15. On this day, Central America celebrates two hundred years of its independence. But the protesters’ motives are diffuse, with some protesting the introduction of Bitcoin and the Supreme Court’s unconstitutional decision to approve the president’s direct re-election. Others protested against planned constitutional reforms and the restriction of freedom of the press and freedom of expression, while others protested against the sluggish reactivation of the economy. Protesters pretend that they have not taken to the streets out of fear. Whether these protests will continue or intensify remains to be seen.

Role model for other Central American countries?

Not only since the introduction of Bitcoin in El Salvador, other Central American countries have also become aware of the potential of digital currencies. In Honduras, the central bank is already researching the introduction of digital central bank money. Central banks around the world are working on developing a digital form of their respective currencies as well as regulating cryptocurrencies. In Panama, a draft law was presented at the beginning of September, which, however, only provides for the regulation of cryptocurrencies as an alternative means of payment and does not make adoption mandatory. Although the introduction of Bitcoin could further advance the integration of Central America, especially in the commercial and financial sectors, transparency and a clear legal framework must be guaranteed for such a system to work. Digital currencies offer enormous potential for people without access to the banking system. However, it is important to differentiate between the different forms of digital currencies and their functions: While Bitcoin is less suitable as a means of payment due to its high volatility, so-called stablecoins, a version of cryptocurrencies whose value is pegged to that of reserve currencies such as the US dollar, have high stability. Many users use Bitcoin more as a form of investment than as a medium of exchange. Thus, it seems highly problematic when transactions are obliged to accept a volatile cryptocurrency such as Bitcoin. Even supporters of a currency competition should therefore treat El Salvador’s decision with caution.

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