Posted on 11/24/2007 9:46:30 PM PST by bruinbirdman
Less than six years ago, as euro notes and coins were launched, politicians sought to champion the new currency. “The euro could become a reserve currency with equal status to the dollar,” said Hans Eichel, then Germany’s finance minister.
Back then the euro was worth less than 90 US cents. This week, as the euro heads towards $1.50, lifted by speculation that the world’s central banks might cut links to the dollar and switch to its younger rival, Europe’s politicians might regret what they had once wished.
The threat to exports from a strengthening euro is sounding alarm bells across the continent, raising concern that the eurozone is bearing an unfair burden of global economic adjustment and that a significant economic slowdown lies ahead.
In spite of politicians’ worries, however, few economists expect that the euro will threaten the dollar’s global role in the foreseeable future. The euro has notched up successes: the value of euro notes in circulation now comfortably exceeds the value of dollar bills and the euro has overtaken the dollar as the main denomination of international debt issues.
But a switch from pricing oil in dollars to euros, as mooted by some, would have largely symbolic significance. More crucially, the dollar still forms by far the largest part of official foreign exchange reserves.
“Nobody knows what will happen in 20 years from now but this process of substituting a leading currency with another one is a long process,” says Otmar Issing, former chief economist at the European Central Bank. “The incumbent always has advantages.”
A greater international role for the euro would reflect logical diversification by central bankers – and could be seen as a tribute to its underlying strengths.
Mr Issing, a former Bundesbank official, recalls how in the 1970s Germany’s central bank was wary about the global status of the D-Mark and the additional responsibilities it felt, but came to change its mind. “As a central bank, it [the currency] is your baby. And if it is so widely appreciated, it is an expression of credibility and trust in the future stability of the currency.”
Will the global attention on the euro create problems for the ECB? Simon Derrick at Bank of New York Mellon dates the start of the currency’s long-term rise to eurozone politicians’ lobbying efforts earlier this decade. Between early 2002 and the second quarter of this year, the euro’s share of known official foreign exchange reserves rose from 19.7 per cent to 25.6 per cent, according to International Monetary Fund figures.
One advantage for the ECB, Mr Derrick argues, is that it has not had to be as aggressive in lifting interest rates – the stronger euro has done its work for it. “But it means that they don’t have the whip hand when it comes to how tight monetary conditions are.”
Still, that would have been true whatever the causes of the euro’s appreciation. Meanwhile, the ECB would argue strongly that, like the US Federal Reserve, it sets monetary policy in the best interests of the geographical region for which it has responsibility.
Talk about the international role of the euro is, anyway, likely to prove inflated, says Holger Schmieding, economist at Bank of America. “Regardless of short-term cyclical fluctuations, the long-term demographic and economic prospects for the US economy and currency are better than for the eurozone. Once the dollar has hit its cyclical bottom, talk of the euro dethroning it will die down.”
currencies hurt my head
We are in trouble.....If the dollar collapses, Bush gets his Amero.
If??
I don’t think the “Amero” is coming out any time soon. But thanks to our Republican “leadership”, the dollar is as worthless as it’s bees since at least the Carter days.
If by leadership, you mean George Weakdollar Bush, I agree.
Nearly all of the big wheeler-dealers of the world are afraid of any very fast dollar currency change. The transition to currency equalization will be gradual, IMO, and it’s not all about the euro.
I can see it now: international speculators and rap stars start putting their money into Euros, but then the dollar regains and then the Euro tanks. Ha ha ha!
yitbos
The dollar is “cheap” which means our goods are cheaper abroad and our exports increase. Economics always is a double-edged sword, some get hurt and some benefit. Europe is hurting because its exports are losing out. A “strong” dollar is one that hurts US exports. More correctly, an “expensive” dollar hurts exports (but makes imports cheaper). Like much financial news, the death of the dollar is greatly exaggerated.
And George Soros will find a way to make money in both directions.
I mean Dubya, but also what was until a year or so ago a Republican Congress that passed all those spending bills that our fearless leader was more than happy to sign. Everybody screams about the Fed’s loose money policy, and they’re right, but they ignore the fact that if it weren’t for the government spending so much that it would make a drunken sailor blush, the Fed wouldn’t have to print money to keep up.
A weak or strong currency is a double-edged sword. Desirable economic characteristics are investment, innovation and growth. Currency games are no substitute for sound economic policy.
Wasn’t the Euro released at around 1.30?
It only went to 90, because it PLUNGED against the dollar initially.
Now it’s back up.
Later, it will go back down. Then up. Then down.
Rumor is the Russians are getting ready to strike two zeros off their currency and issue new banknotes sometime in 2Q 2008. It will be a re-denomination instead of a re-valuing. Much like they did once before in the 90s. Instead of $1=R25 it will be $4=R1.
People just can’t envision that that may be the real reason for the current currency flap....
I’ve watched forums all over the web and so few know what is really going on that its frightening....especially in the EU.
Here in America, about one percent buy the Amero possibility...and see where things are headed.
I’ve watched forums all over the web and so few know what is really going on that its frightening....especially in the EU.
Bet in 5 to 6 years the Euro won’t be around.
Bet in 5 to 6 years the Euro won’t be around.
My sentiments exactly. In the mean time, Euroweenies come here in droves to do their Christmas shopping, while European retailers are left to eat our dust (again). This shopping season will be the beginning of the downturn of the Euro. In the end, Socialism looses every time it's tried.....
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