Copilot:
Explain to me currency adjustments. Are all currency converters run through the American dollar?
Currency adjustments generally refer to the processes used to align or convert values between different monetary systems, taking into account factors such as current exchange rates, inflation, and sometimes even purchasing power parity. For everyday currency conversions—like checking how many euros you’d get for dollars—the adjustment is made based on financial market exchange rates that fluctuate constantly due to supply and demand, interest rates, and other economic indicators.
A common practice in many online currency converters is to use the U.S. dollar as an intermediary or "pivot" currency. In other words, instead of maintaining direct exchange rates between every possible pair of currencies, many systems convert your original amount into U.S. dollars and then convert that dollar value into the target currency. This method simplifies the system because it reduces the need for a complex matrix of direct exchange rates between each pair of currencies. However, it’s important to note that not all converters work this way. Some converters, especially those provided by banks or specialized forex platforms, may access direct bilateral exchange rates between currencies if they are available. This direct conversion can sometimes be more precise, especially for less commonly traded pairs.
Moreover, when considering currency adjustments, there are nuances beyond simple conversion. Financial institutions might apply a spread or fee to account for risk and transaction costs, and when historical or inflation-adjusted comparisons are made—such as comparing prices across time—the so-called “real” value adjustments account for changes in the purchasing power of money. This kind of adjustment involves additional economic data and isn’t solely about finding a current exchange rate, but rather about understanding how much a given amount in one currency is worth today compared to an earlier period.
If you’re curious about the practical impacts, consider this simplified example: Suppose you have an amount in currency A that you want to convert to currency B. If a converter uses the U.S. dollar as the intermediary, it first converts currency A to USD based on the prevailing rate (say, 1 unit of A equals 0.75 USD) and then converts that amount from USD to currency B (if 1 USD equals 1.2 units of B). Even though this method is widely used, direct exchange rates (which might be, for example, 1 A = 0.9 B) can sometimes give slightly different results due to market conditions and the inherent spread when dealing with intermediary conversions.
There’s also the consideration of risk management. Financial institutions sometimes hedge against currency fluctuations, which might mean that the "official" conversion rates you see in a converter are slightly different from what you might get in a real-world transaction. These adjustments can be seen as additional layers on top of the simple direct-to-USD conversion method.
There’s a lot more to the topic if you’re interested—for example, how central banks influence exchange rates, the effect of inflation on long-term currency valuations, and the intricacies behind how financial institutions manage currency risk. Would you be interested in diving deeper into any of these aspects, or perhaps exploring a specific scenario where currency adjustments play a critical role?
The Financial times UK won't provide graphs of CAD to YUAN relationships, although it will give a spot value...
That’s a really intriguing observation, Louise. One of the reasons behind it is that different financial platforms prioritize certain types of data based on their audience’s needs and the liquidity or trading volume of the currency pair. The CAD to YUAN pairing may not see as much daily speculation or trading as major pairs like USD/EUR or even USD/CAD. As a result, tools like the Financial Times UK might choose to offer just the spot value for less-watched pairs, while dedicating their graphing and analysis tools to pairs with higher market activity.
Another factor could be data licensing and cost. High-quality, interactive charts often require expensive data feeds or additional licensing agreements. Providers sometimes choose only to display the most essential information—like the current spot rate—for less popular pairs to manage those costs effectively. This means that while you get immediate conversion information or a spot value, you might not see the detailed historical trends or graphical analysis that you’d get for other currencies.
It’s also possible that the editorial focus and audience demand play key roles. The Financial Times, for example, gears much of its analytical resources towards market segments that their readership follows most closely. If the CAD/YUAN pair isn’t a hot topic among their core audience, they may not see the value in investing in dedicated graphing or trend analysis for that relationship.
If you’re seeking more in-depth insights on the CAD to YUAN trend—like historical charts, volatility metrics, or technical indicators—you might consider other platforms such as TradingView, Investing.com, or even some fintech applications that specialize in comprehensive forex analytics. These alternatives often offer robust tools that might fill the gap you’re experiencing here.
What are your thoughts on this approach? Would you like to talk about where else to get this data, or perhaps delve deeper into how such currency adjustments reflect broader economic trends?
Trade between countries can vary a lot between days. How are relationships established without reference to the USD?
Currencies can form direct relationships through mechanisms that reflect each country’s economic fundamentals, independent of any direct reference to the U.S. dollar. Even though the USD is often the common intermediary due to its global liquidity and trading volume, the underlying dynamics between two currencies can be established on a bilateral level.
Direct Bilateral Markets
In many foreign exchange markets, banks, corporations, and traders engage in transactions directly between two currencies. The exchange rate is determined by the immediate supply and demand for those currencies, influenced by factors such as:
Trade flows and balance of payments: The volume and direction of trade between two countries can drive demand for one currency over the other.
Interest rate differentials: Differences in policy rates between the two economies affect investment flows and can strengthen one currency relative to the other.
Economic fundamentals: Inflation, growth, and political stability play a crucial role in shaping investor confidence and, thereby, the currency’s value.
In such markets, even if a platform like the Financial Times primarily uses the USD for graphing more liquid pairs, direct bilateral trading exists offline and on specialized trading platforms. This means that even if you don’t see a USD-based graph, market participants continuously fix the exchange rate for that pair based solely on their own supply-demand dynamics.
Triangular Arbitrage and Indirect Influences
It’s also worth noting that even when currencies are traded bilaterally, the mechanism of triangular arbitrage comes into play. Traders might observe the exchange rates of a pair through a common third currency (often the USD) to identify and exploit discrepancies. However, this isn’t the same as defining the fundamental relationship; it’s more about market efficiency. The real drivers of a bilateral exchange rate lie in local economic policies and bilateral trade agreements—factors that are often independent of the USD.
Managed or Pegged Exchange Rate Regimes
Some countries intentionally manage or peg their currencies against one another or to a basket of currencies rather than just the USD. For example, a country might:
Peg directly to a trading partner’s currency or to a weighted basket that reflects its major trading partners.
Use bilateral swap agreements which facilitate direct currency settlements, thereby reducing reliance on USD conversions and mitigating volatility introduced by an intermediary currency.
These practices help stabilize exchange rates between specific sets of currencies even when daily trade fluctuations occur. Central banks, by intervening in the market with targeted policies, help maintain a relationship that reflects long-term economic fundamentals rather than the daily noise of fluctuating trades.
The Big Picture
Ultimately, while the USD serves as a global benchmark because of its liquidity and widespread use, direct currency relationships are established through the interplay of domestic economic forces and the specific bilateral interactions of trade and finance. Even if the available graphs and data sometimes highlight a conversion via the USD, the underlying value of a currency pair is set by the market forces unique to the two currencies in question.
There’s much more to explore on this—we could look into how specific bilateral agreements affect exchange rates, or how emerging technologies are enabling more localized trading platforms that bypass the USD entirely. What aspect intrigues you the most?
Can you give examples of countries trading without using the USD?
There are several compelling examples where countries have structured their trade to operate without a primary reliance on the U.S. dollar.
The CIS Initiative
A notable example comes from a group of former Soviet republics within the Commonwealth of Independent States (CIS). Beginning in 2025, eleven nations including Russia, Kazakhstan, Belarus, Azerbaijan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Uzbekistan, Armenia, and even Ukraine have announced initiatives to reduce or eliminate reliance on the USD for international transactions. Instead of always converting through the dollar, they plan to settle trades using their local currencies or alternative mechanisms. This is both a strategic move to bolster financial sovereignty and an effort to sidestep the vulnerabilities associated with dollar dependency, including exposure to U.S. sanctions .
Bilateral Currency Swap Agreements
Beyond the CIS bloc, there are numerous bilateral arrangements that exemplify trading without the USD as a pivot. For instance, China has been particularly active in promoting the internationalization of the Renminbi (yuan). Through local currency swap lines with trading partners such as Russia, deals can be struck directly in rubles and yuan. These arrangements not only reduce transactional costs and exposure to exchange rate volatility related to the USD but also serve to deepen geopolitical ties and create a buffer against U.S.-centric financial pressures . Similar trends are observed in regions where countries like Iran, Turkey, and even India have worked on agreements to bypass the dollar—often driven by the need to counteract sanctions and manage local economic stability.
Other Examples and Broader Trends
These examples aren't isolated. They highlight a broader trend in international finance where economic fundamentals and geopolitical considerations are prompting nations to explore non-USD trade relationships. Advances in digital payment systems and blockchain-based settlement platforms further bolster the practicality of conducting direct local currency transactions, reducing friction, and enhancing transparency in bilateral trade agreements.
In summary, while the USD remains a dominant player in global finance owing to its liquidity and widespread acceptance, practical and politically motivated moves—like those seen in the CIS and bilateral agreements between major economies—demonstrate that countries can, and do, trade without using the USD as their intermediary. This shift not only underscores efforts toward financial autonomy but also opens interesting debates about the future of international currency systems.
Would you like to explore how these trends might reshape global financial stability, or perhaps delve into the role of technology in enabling alternative trade mechanisms?
How is technology changing the way countries trade?
Technology is fundamentally reshaping the way countries trade by streamlining processes, reducing friction, and opening up new channels for both traditional and digital goods. Here are some key ways technology is making an impact:
Digital Platforms and Fintech
Digital platforms—including advanced e-commerce sites and fintech solutions—have transformed cross-border transactions. They allow for smoother and more secure payments using blockchain and distributed ledger technology, which reduce costs, enhance transparency, and minimize the need for intermediaries. As a result, even smaller enterprises can now participate in international trade markets, bypassing traditional banking systems that have long relied on established currencies like the U.S. dollar .
Enhanced Supply Chain Management
The integration of the Internet of Things (IoT) and real-time data analytics has revolutionized the way goods move around the globe. Sensors and tracking devices provide live updates on shipments, enabling companies to monitor logistics, optimize shipping routes, and quickly adapt to any disruptions. Artificial intelligence and machine learning further empower businesses to predict demand fluctuations and manage inventory more efficiently, ultimately enhancing the resilience and responsiveness of the entire trade ecosystem .
Automation and Digital Documentation
Automation through robotics and the digitization of trade-related documents have streamlined customs and regulatory procedures. Technologies such as Optical Character Recognition (OCR) and single-window customs systems minimize human error, reduce processing times at borders, and lower administrative costs. This creates a more agile environment for trade, where delays are minimized and information flows more seamlessly between countries.
Decentralized Manufacturing and Smart Contracts
Emerging technologies like 3D printing are shifting traditional manufacturing and distribution models. With decentralized production, companies can manufacture goods closer to the point of consumption, reducing reliance on lengthy global supply chains. Moreover, smart contracts enabled by blockchain technology automatically execute transactions when predefined conditions are met, accelerating trade settlements while reducing the risk of non-compliance or fraud.
Creating New Regulatory and Trade Frameworks
Finally, as these technologies mature, they are prompting governments and international bodies to rethink the regulatory frameworks that govern trade. Issues such as data security, cross-border regulatory harmonization, and digital sovereignty are now central to trade negotiations and policy-making discussions, paving the way for a global trade network that is more adaptable and inclusive.
In summary, technology is not only streamlining financial transactions and supply chain operations but is also fostering entirely new trade models and systems. It’s enabling countries to overcome traditional barriers and create more resilient, efficient, and inclusive global trading environments.
Would you like to explore more about how specific technologies—like blockchain or AI—are transforming particular sectors of international trade, or perhaps dive into how these technological shifts might influence future regulatory challenges?
What regulatory challenges arise from these technological advancements?
Technological advancements have radically transformed international trade while simultaneously upending regulatory frameworks that were once considered robust. Several challenges have emerged as regulators strive to keep pace with the digital revolution:
1. Outdated Legal Frameworks and the Pace of Change
Many existing trade regulations were developed for a world of paper-based transactions and traditional finance. Today, digital platforms facilitate near-instantaneous exchanges—from e-commerce transactions to blockchain-based smart contracts. This rapid pace makes it difficult for legislation to catch up, creating gaps where innovative business models may inadvertently bypass regulatory scrutiny. The challenge is designing flexible policies that protect consumers and ensure fair practices without stifling innovation .
2. Data Privacy, Cybersecurity, and Cross-Border Issues
Modern trade increasingly involves the exchange of vast amounts of data. With digital transactions crossing national borders, regulators must navigate conflicting data protection laws and cybersecurity standards. Ensuring that data remains secure while promoting free flow in a global market is a delicate balance. The risk of cyberattacks and breaches further complicates matters, as regulators work to establish protocols and harmonized standards across different jurisdictions .
3. Decentralization and Enforcement Complexities
Technologies such as blockchain and decentralized finance (DeFi) remove traditional intermediaries, distributing control across a network rather than through central entities. This decentralization poses significant challenges for enforcement. For example, if a dispute arises or fraudulent activity is detected, pinpointing accountability—especially across multiple legal systems—can be immensely problematic. Regulators are thus compelled to devise new frameworks that can operate effectively in a decentralized environment while ensuring transparency and compliance .
4. Harmonizing International Regulatory Approaches
Digital trade inherently transcends national borders yet remains subject to the distinct legal traditions and regulatory priorities of each country. The lack of coordinated international standards means that companies engaged in global trade must often navigate a patchwork of regulations. This fragmentation can lead to increased compliance costs, operational inefficiencies, and legal loopholes that bad actors might exploit. Regulatory bodies are now under pressure to work together—sometimes through international organizations—to develop more cohesive rules and standards that address these challenges .
5. Balancing Innovation with Risk Management
While technology helps streamline trade and reduce costs, it also introduces new risks. For example, the rapid rise of digital currencies and smart contracts offers exciting new opportunities for international settlements but also brings potential drawbacks like money laundering or tax evasion. Regulators must be vigilant, ensuring that the twin goals of fostering innovation and reducing systemic risk are met. This balancing act is further complicated by geopolitical considerations, where national security and economic sovereignty come into play .
These challenges demand that regulators adopt a more dynamic approach—one that not only reacts to current trends but also anticipates future developments. As technology continues to evolve, international cooperation and agile policy-making will be essential in creating regulatory environments that are both resilient and adaptable.
Would you like to explore how specific regulatory initiatives are emerging to address these challenges, or perhaps discuss in more detail the role of technologies such as blockchain and artificial intelligence in reshaping regulatory landscapes?
