The Case For a High Flying Euro Dollar
The Euro Dollar was adopted as a unit of exchange in January 1999. Those who advocated the currency believed it would strengthen Europe as an economic power, increase international trade, simplify monetary transactions, and lead to pricing equality throughout Europe. They probably did not anticipate that the Euro would become as early as 2008 a preferred reserve currency by many investors and central banks around the world.
The Euro zone does not run a huge trade deficit nor is it heavily indebted to the rest of the world like the US and interest rates in the Euro zone are also significantly higher. The Euro-zone has a larger share of world trade than the US and is the Middle East’s main trading partner. The Euro is divided into 100 cents, sometimes referred to as euro cents , especially when distinguishing them from other currencies or the former currency in a particular country.
All circulating euro coins including the commemorative coins have a common side showing the denomination, value, with the old 15 EU-countries in the background. The Euro certainly simplifies the prevailing situation in Europe before the Euro of having to exchange currencies as you traveled about Europe.
The Euro-Atlantic Partnership Council provides the overarching framework for consultations among its members on a broad range of political and security-related issues. The Euro has become a credible challenger to the US Dollar’s position as the world’s premier reserve currency. Euroland is roughly as big as the United States, and the Euro has shown itself to be a much better store of value than the dollar. The Euro was first adopted on 1 January 1999. Euro notes and coins came into circulation on 1 January 2002.
The Europeans have decided to control inflation, which is a bigger evil than a short term recession. Anyone who has lived through a double, triple digit inflation, like myself would much prefer a strong currency than a complete chaos and society destruction that inflation brings. The Euro zone is huge in population and huge in investment opportunities. Why should Euro companies hold USA dollars investments as USA investments decline in USA dollar value due to lower USA price to earning ratio values?
The European Economic and Monetary Union (EMU) and the Euro, the single currency of its members, will be ten years old in 2009. Monetary unions as currency arrangements have been implemented for a few centuries, but the European experiment of embarking on a monetary union without an accompanying full political union is bold and unprecedented.
The Euro has now appreciated approximately seventy percent relative to its historic low against the dollar, set on October 26, 2000. This appreciation has been economically justified given Europe’s large trade surplus with the United States. The European Central Bank, which runs the euro currency, now sets monetary policy and interest rates for its members, even though they are often at different stages of the economic cycle.
The Euro area uses less oil per head, exports more to cash rich oil producers and has a far healthier trade balance than America. All these are factors that favour its currency over the dollar. The Euro has been a most successful experiment in establishing a new currency. It looks to soon become favored over the US Dollar as the preferred currency to hold in investment accounts, perhaps it already is, and as an official reserve currency held by nation’s treasuries.
The US government may have already followed unwise fiscal and monetary policies for too long to completely redeem the Dollar and restore it to its former number one preferred currency position.