While currency MOVEMENTS are historically 0 (I agree with that), the 4% withdrawal, cFireSim and the trinity study are looking at how things line up in retirement to give you best/worst returns. The graph I gave illustrates the difference currency exchange rates AT THE TIME can make on whole of world share price. If I had bought in the low at 2008, I would have paid DOUBLE my normal rate for a whole of world index because our dollar went down so much with respect to the US dollar for the duration of the problems. It then came back up again, so if I had bought in the dip and sold a year later, when the share prices recovered, I would get (let's say) half the gains that someone in the US doing exactly the same thing would get. This SURELY has a marked effect in the SWR for and Australian buying whole of world shares as against someone from the US.
Funny how you can see that your market only crashed HALF AS MUCH as the rest of the world in 2008 (a 25% drop instead of a 50% drop), and turn it into a bad thing, in a conversation about the 4% safe withdrawal rate :-P
I understand your main point though. I'd be much more worried about currency risk if my country only represented 2% of the world economy. What if next time currency risk goes the other way, instead of cushioning the crash (turning a 50% world crash into a 25% crash for you), it exacerbates it (by turning a 50% world crash into a 75% crash for you)? Luckily there's a very simple step you can take to mitigate this, use Vanguard's hedged international ETF:
https://www.vanguardinvestments.com.au/institutional/jsp/investments/etf-detail/etfdetailVGADHE.jsp
I don't think you are getting my point at all.
This thread is about applying cFireSim in your own country. I see there being two elements to this.
Firstly, you need the data for your own country, so cFireSim runs against your own country's data as against the US data for the % you have decided to go for homegrown stocks.
Then, you need whole of world data for the % you have decided to go for whole of world stocks (because if, as you say, your country only has 2% of the world stocks, you need some non-homegrown stuff).
Then you need the currency differential to multiply the whole of world stocks so that it gives a true idea of how the whole of world stock prices move for your own country.
Then you need to say what you are doing - let's say 50/50 home/world or whatever, and let the Trinity study or cFireSim or whatever run to see what you actually SHOULD be doing, and whether whole of world REALLY gives an advantage, or whether it is better to stick (even in an environment which is 2% of the world) with just home stocks. And whether the introduction of whole of world stocks actually makes a difference to the 3.6% SWR that is currently quoted for Australia (for example).
The original outcome of the Trinity study is based on US home stocks. What REALLY happens when you add whole of world into the mix? I don't know of any study that has looked at this. We are ALL being told to diversify, and that diversification is a good thing. If it is, a Trinity study or a cFireSim should show this.