Currency Competition and Foreign Exchange Markets: The Dollar, the Yen and the Euro is a complex book of empirical and theoretical study on international currencies. Originally published in 1998, it remains one of the best and most comprehensive examinations of international currency available to date. While the focus is on examining the likely effects of introducing the Euro as an international currency (which took place in 1999), the overall approach of creating a theoretical model to predict impacts can easily be translated in numerous ways on the current foreign currency exchange market.
While this is certainly not an easy reading book for the faint of heart or for the novice just getting acquainted with the foreign currency exchange market, Currency Competition and Foreign Exchange Markets: The Dollar, the Yen and the Euro is still an excellent resource to have in your library. You will not likely sit down and read it cover to cover in a single sitting, but it is exceptionally good for reading small bits at a time and allowing the information learned to soak in and be thoroughly absorbed by the brain.
The approach of Currency Competition and Foreign Exchange Markets: The Dollar, the Yen and the Euro
The author of Currency Competition and Foreign Exchange Markets: The Dollar, the Yen and the Euro, Philipp Hartmann, is an internationally recognised leader in the examination and understanding of foreign currency exchange markets. His tremendous experience and knowledge, gained in part through his role at the European Central Bank, gives him a distinct advantage and a unique approach to discussing some of the more sophisticated and complex aspects of foreign currency exchange and the ramifications of changes or additions to the currencies traded on this volatile market.
His approach to this book, then, was definitely shaped by his desire to examine the impending introduction of the Euro from a perspective beyond the normal macroeconomics usually employed in this field. He chose instead to use a theoretical and empirical approach, bringing an entirely different set of tools and, ultimately, insights to his work. Among the tools he used are the following:
- Panel econometrics
- Time series econometrics
- Game theory
- Linking transaction cost economics with analysis of financial markets
The resulting theoretical model is unlike any other available at that time, and the main reason why Currency Competition and Foreign Exchange Markets: The Dollar, the Yen and the Euro was hailed as such a ground breaking work when it was originally published.
Presentation of results
In Currency Competition and Foreign Exchange Markets: The Dollar, the Yen and the Euro, author Hartmann presents his results with several different considerations in mind. These considerations include the perspectives of major institutions such as banks, insurance companies, and governments; placement of new results and theories against the backdrop and experiences of history on the foreign currency exchange markets; and in the context of political issues, alliances, disconnects, and pressures both between countries and within countries participating in the foreign currency exchange.
Because of the depth of information presented and the innovative way in which it is presented, this book quickly became (and remains today) an extraordinarily useful resource for scholars, policy makers, businesses, and finance professional all around the world. Finance professionals in particular have gained a great deal of value from the section on Multiple Vehicles with Interdealer Price and Entry Competition as well as the section on Spread Estimation.
Table of contents from Currency Competition and Foreign Exchange Markets: The Dollar, the Yen and the Euro
The table of contents from Currency Competition and Foreign Exchange Markets: The Dollar, the Yen and the Euro reveals the complexity of the author’s thinking as well as the tremendously valuable information contained in the book. Let’s take a closer look at what the table of contents includes:
- Introduction – This is the introductory section of the book, setting the stage and foundation for the rest of the content and discussion. It includes information about the importance of the European Monetary Union, the vital function of currency internationalisation, and the crucial role in all of this played by the foreign currency exchange markets.
- Survey on international and national money – This section provides an excellent overview and examination of international money. It includes details about widely held theories on international money, accepted functions and purposes fulfilled by international money, and a solid tracing of the history of international money.
- Vehicle currency theory – This section presents a theory of vehicle currencies that is important to understand before moving forward with the rest of the book. The discussion includes a basic introduction to vehicle currency theory, structures of the currency exchange, and information about the cost of transactions in the foreign currency exchange market.
- Currency competition – This section gets to the very heart of the subject examined by the author, beginning with a detailed examination of the nature and history of currency competition. It then moves on to talk about the Deutsche mark and how it came on to the foreign currency exchange stage as a vehicle currency, drawing comparison and parallels with the European Monetary Union and what was known as “simple arithmetics”. A vibrant and detailed discussion then unfolds regarding the European Monetary Union and its activities related to official reserve holding, foreign currency exchange markets, international investment, foreign trade investing, and European financial markets.
- Short term and long term expectations – This section examines expected changes in transaction costs as well as trading volumes triggered upon the introduction of the Euro. It focuses on first reviewing spread theory and then refining it to better reflect the purpose of this subject. The result is a healthy discussion of volumes and spreads, using a time series approach for the short run and a panel data approach for the long run.
- Conclusions – This section brings all of the pieces together from the book as a whole, allowing the author to effectively communicate results and predictions about international financial and monetary policies, analysis of the micro structure of the foreign currency exchange market, and a refined theory of international money.
It’s easy to see why Currency Competition and Foreign Exchange Markets: The Dollar, the Yen and the Euro is considered such a complex and comprehensive book, but it’s equally easy to see why it is well worth the time and effort needed to read and understand the material it contains.
Helpful content additions
A book such as Currency Competition and Foreign Exchange Markets: The Dollar, the Yen and the Euro could very easily become bogged down and confused in page after page of complicated text, but the author does a very nice job of preventing that from happening. Throughout the book, the reader will find strategically presented tables, illustrations, charts, and figures that help to explain the topic being discussed. These helpful additions to the content of Currency Competition and Foreign Exchange Markets: The Dollar, the Yen and the Euro make a tremendous difference in the reading and understanding of the book overall.
There is also a complete and detailed bibliography included in the book, which is not all that unusual for a book of this type. In this case, however, the comprehensive bibliography adds to the authority and understanding of the author’s thinking while also allowing the reader to consult as many or as few source materials as they like. While going to the source material is indeed a tedious exercise for most readers, having the information available and easily accessible is a real benefit to those who truly want to go into that depth of examination and understanding.