Question

What are the consequences of a global basket of currencies in the world?

Answer 1

A currency basket is a collection of various currencies with varying weightings. It is frequently used to determine the market value of another currency, a procedure known as currency peg. Forex traders may also use basket orders to trade many currency pairs at the same time.

Currency baskets are also used in contracts to minimize (or reduce) the risk of currency changes. Currency baskets include the European currency unit (which was replaced by the euro) and the Asian currency unit. The most well-known currency basket, though, is the US dollar index (USDX).

The drawbacks are:

• The first thing to make is that a basket currency peg system is opaque.
• The second issue is that an intermediate regime often limits certain sorts of policy collaboration and may even allow policy conflict.
• The third drawback, and arguably the most important, is that the basket currency system makes no declaration of the criteria governing management.

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