An interesting week for the evolution of Forex!
Coming just after leading US based intellectuals calling for the dethroning of "King Dollar" in an NY Times op-ed [12], we are moments away from a vote that could cause a major shakeup of the Eurozone, potential crash of the GBP [13], and creation of a new Scottish currency yet to be named [14]. This will be very interesting considering Scotland's currency history, during the 18th and 19th centuries many Scottish banks issued their own currencies. And some have suggested they might try Bitcoin [15].
Meanwhile, the Ruble is at historic lows against the US Dollar [16], on the same day that China announced a "Stealth QE" program. [17] Moscow is 'warning against panic' as the ruble plunges [18] - obviously these officials don't understand the West's version of Forex policy (to destroy your currency as much as possible via ZIRP & QE).
Sanctions are meant to 'punish Russia' but isn't the purpose of QE, Abenomics, and similar strategies to lower the value of the currency as much as possible to boost exports? Since the breakup of the Soviet Union, the Russian economy has grown rapidly and strongly. They have one of the fastest growing middle classes in the world [19], less poverty than the United States, and new generations of industrial technology such as Nuclear plants that do not produce traditional waste [20]. When Russia implemented the market based system they have now, they had to reinvent themselves. Development was a necessity - not a luxury of trust fund babies making businesses out of hobbies in their parents garage.
Scotland will have to do the same; and the foundation of their new system must be a robust currency system and monetary policy. Given modern technology this is a lot easier to do than 100 years ago. Also there are now hundreds of examples of alternative currencies [21]. NZD/USD now trading at about .81 - the GDP of New Zealand currently 182 Billion. The GDP of Scotland is about 216 Billion.
Of course, part of how the Euro was sold was on the basis of a consolidated currency, that it would be good for trade, save money on exchange, a consolidated bond market, etc. But the crisis in the Eurozone is showing the cracks in that model. This t-shirt eloquently explains why a consolidated currency will never work in a diverse region of different languages, cultures, and markets:
Trade the vote
A simple strategy to trade the vote [22], of course if your broker will clear the trades (already we are receiving volatility notices); buy a long straddle (put and call) on EUR/GBP, GBP/USD, and GBP/JPY. If you live in the Dollarzone and can't access Forex options, this can be done with spot Forex by placing 2 limit orders 50 pips above and below the price going into the vote with a trailing stop (likely only one will get triggered). If GBP spikes 100 - 200 pips, the limit order will get triggered and then you will have to close it manually or let the trailing stop take it out. Of course in this scenario it's questionable if your broker would honor the limit (especially if there is a server malfunction or bottleneck of orders as happened when the SNB intervened and subsequently crashed a bunch of FX servers). Another situation that can happen though is as initial results come in the market can swing violently in one direction and then the other as we have seen during many Fed announcements. Guid Luck!
Scottish coins, including a unicorn from the reign of James III. Photograph: Kim Traynor/Wikipedia