Banks and the FOREX Market

A central bank, or reserve bank, is a banking organization arranged the select authority to lend a government its currency. Similar to a normal bank, a central bank revenue is derived from interest charges on loans made to borrowers, first to the tied government and second to other banks within the countries entities, typically as a ‘lender of last resort’. It is relevant to note that a central bank differs from a normal commercial bank because it has a monopoly on creating the currency of that nation, which is loaned to the government in the form of legal tender. It is a bank that can lend money to other banks in times of need. Its main function is to provide the nation’s money supply, but other duties include controlling “subsidized-loan” interest rates and acting as a “lender of last resort” to the banking sector during times of financial crisis (private banks often being integral to the national financial system). It can also act as an administrative power, to ensure that banks and other financial institutions do not conduct business in a fraudulent nature.
Currently there are issues with the EURO that are causing weakness or perceived weakness among that currency and it’s holders. The Central Bank, of sorts, for the EUR is the IMF or International Monetary Fund. The chairman is Jeaan-Cluade Trichet. Recently he publically spoke about his dismay with the way certain countries were handling the crisis among Greece specifically, but Ireland, Portugal, Spain and Italy as well. These nations have been showing extreme irresponsibility in managing debt, causing the Euro to loose value faster than other countries, including the USA. Unfortunately for the EURO is it in a no win situation because if other countries “bail” out certain nations, it will jeopardize those troubled nations’ sovereignty, and if the bail out happens as the IMF would dictate, the EUR would weaken tremendously jeopardizing the importing power as a continent. The only solution is for the troubled nations to fix things themselves, which will be difficult considering their educational resources, and producing resources, they posses as a whole.
Long term outlook for the EURO in my opinion will be weaker, If the importing power weakens we may see commodity driven stocks in the US loose value as their customer base dries up, adding more salt to an already troubled employment situation in the US. –Daniel Araujo. J.D.