Even a hint of conflict can destroy a currency

The content is supplied by Finance Makers, on the behalf of Axiory – a Belize regulated brokerage.

We live in unprecedented times with the novel coronavirus pandemic taking over the world and the chaos prevailing in the United States. Nevertheless, conflicts that existed before remain a great threat to the security of nations, people, and their stability. Under the current circumstances, millions of people are under a constant threat of being left homeless due to the conflicts erupting within the region. 

Military or political conflicts are a real threat that jeopardizes the peace, stability and economic prosperity of any nation regardless of power and location. Before the coronavirus pandemic, many believed that the most powerful nations like the United States had guaranteed themselves safe spots, being protected from any threat whatsoever. Yet, today we witness how some of the leading nations in the world are suffering the worst during these uncertain times. 

The digitalization is making financial markets more vulnerable to conflicts

The recent decades have been absolutely game-changing for the financial industry. Now more than ever before, we use different types of digital technologies to trade with currencies, stocks, and different commodities. The entire network spans across the globe and is well interconnected, able to transfer the information or giant sums of money to the other side of the world in a matter of milliseconds. 

What benefits has this change brought to the average customer of the financial services? The entire industry has become much more flexible, easily manageable, better accessible, and transparent. Today, people can trade without the fear of becoming yet another victim of a money-laundering operation executed by overseas cartels. Rather, stock markets and currency exchanges, due to the nature of financial markets today, are some of the most trusted institutions. They truly had to earn this name following the whole range of controversies over the second half of the 20th century. 

After practically the complete digitalization of the financial industry, particularly the financial markets, they have become much more responsive to external factors than ever before. This does not only cover the conflicts or the military operations, but also any high authority statements that are made by the heads of the state or the government globally. A very good example of this is the financial aftermath of every White House or a Downing Street statement. The pattern well outlines how big of an impact every political decision or action has on the financial stability and the strength of the currency. 

The currency is the most fragile financial asset a nation can have

The national sovereign currency is of utmost importance for any nation. They determine how much a citizen can buy domestically and internationally. Inflation is extremely dangerous in many cases and can lead to unprecedented financial turmoil as we have witnessed many times in history from the Great Depression to the late 2008-2009 global financial crisis. 

As per findings in Axiory Academy, an education resource of Belize regulated brokerage, in the times of the full digitalization of the financial markets and the presence of easy and simple forex trading on the internet, currencies respond to different political and social actions almost immediately. For instance, as the coronavirus pandemic erupted across Europe and the United States, currency Paris started to shift drastically as an immediate response to the new confirmed cases and various measures implemented by governments of different countries. 

Conflict is the biggest threat to the strength of the currency. Military operations and war remain the primary reason for destabilization and uncertainty in various regions globally. Yet, when the conflict occurs in a more or less peaceful region, the currency really starts reflecting on the tension. We have witnessed quite a few of such examples in recent history, namely the Georgia-Russian war in 2008 or the Crimea crisis in 2014 and 2015. The latter practically destroyed the Ukrainian Hryvnia, bringing the country’s economy back by several years. Yet, even much smaller conflicts can have a significant and long-lasting impact on currencies. 

The Indian-Chinese brawl had an insignificant, but the long-lasting impact on both of the currencies

On June 15th, a deadly brawl broke out at the national border between China and India. The two nations are some of the most populous on earth, as well as the fastest-growing economic superpowers. The incident lasted for hours and left 20 dead on the Indian side, as announced by the authorities later. The anger became extreme in the country as the story of soldiers being beaten to death at the Chinese borders made headlines the same evening. 

Looking at the currency chart, the change is difficult to see. The Indian currency Rupee fell insignificantly and bounced back a couple of days later. The fall was rather insignificant but taking into account the small scale of the conflict and the size of the global superpower that India is, this example really shows how even a tiny conflict situation can spark instability for a currency. 

The exact same pattern was repeated by the Chinese Yuan that fell sharply following the incident but was swift in recovering throughout the next week. The similarity of patter really shows how significant the true impact of the conflict is. It has already weakened the currencies and if something alike repeats in the nearest future, the impact will be much more significant and tangible for both sides.



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