Euro vs. Dollar Will the Euro replace the Dollar as the worlds most popular currency to hold? When the countries of European Union started to use Euro in their everyday cash operations, it definitely buried traditional national currencies of European countries such as German Deutsche mark that was the historical symbol of economical power of Germany. Germany, by the way, is one of the most important trade partner and investor of Russia. Besides, Deutsche mark was quite popular currency for Russians to hold under their mattresses to compare well with the Dollar and many German people claim they would be glad to return to mark (Sesit C1).
Is the population ready to keep their savings in Euro? Will American Dollar expand the sphere of its influence after the Deutsche mark is gone? Will Euro replace Dollar? Rubble is the official currency of Russia. However, the American Dollar is still considered to be the second currency of Russian Republic. Population doesnt see any reasons to refuse from their savings in dollars and to switch to Euro. They consider American Dollar to be the most stable currency and have every reason to believe in that. Many foreign journalists claim that Dollar runs the show in Russia.
According to various sources, such stash of any nation on earth. Since well before the Soviet Union died off, the dollar has been regarded as a guarantee of stability the instrument of choice for one’s life savings, particularly in the 1990’s when inflation ran in treble digits (Wines A4).
Brief History and Implementation Schedule On January 1, 1999, eleven European countries replaced their national currencies and introduced a single European currency, the Euro. Some feel the euro is simply the ECU (European Currency Unit) renamed since the ECU's were exchanged one-for-one for new euros. Bills and coins for the national currencies will remain in circulation as sub-denominations of ...
The establishment of Euro currency is responsible but quite logical step on the way to integration of economy of the European countries. At the same time, it is an ambitious attempt to create the world currency alternative to American Dollar. The bonus as a source of free crediting of European economy at cost of emission of Euro is worthwhile of attempts and additional expenses. Actually, each dollar emitted by the Federal Reserve System of the United States and accumulated on accounts of foreign citizens is a free credit to the American economy.
If to take Russia, for example, 4 billions of 38 billion dollars from gold-currency Bank reserves consist of gold, almost the same quantity belongs to Euro, whereas Dollar makes up the rest. Eighteen billion American dollars are located on accounts of Russian population in the Russian banks, and something like 40 billion dollars as personal savings at homes are also made in dollars. The situation with alternative world currency is not as good as with dollar. According to surveys, current situation shows more pessimism about the usefulness of the single currency, with 36 percent of respondents saying the euro was “disadvantageous over all” for their country up from 29 percent in the months after euro notes and coins were released (Fuller n.p.) The exchange rate of Euro/Dollar declines. Strategically speaking, each exchange rate of any world currency (also the whole world currency) is determined by condition of world economy in general and balance of payment in particular. Europe experiences the pronounced depression with almost zero tempos of growth.
America also experiences crisis with decline of manufacture. However, the financial experts claim that America has already overcome the peak of crisis, whereas the European countries are still in the stage of its development. On the other hand, low exchange rate of Euro has many advantages for the European countries and their economy. Cheap currency means cheap export. No wonder that the majority of the Euro countries have positive balance in their trade relations with the US. There are two main circumstances that will inevitably influence the destiny of Euro. First of all it is oil trade as well as other commerce activity related dollar payments. Secondly, the destiny of Euro will depend on attitude of population of the Eastern European countries (mainly the countries of former Soviet Union).
Enlargement and Deepening of EU The original six members established the European Community in 1957: West Germany, France, Italy, Netherlands, Belgium and Luxemburg. The main reason behind this unification was a specific response to a series of problems, which confronted a group of countries in Western Europe in the immediate aftermaths of 1945. Unification offered Western Europe a means of ...
CIS citizens prefer cash dollars as the method of payment and savings. Speaking about investment processes we can make an assumption that Euro will not have any significant influence on it. The flow of investments to the country (except of speculative trading and purchases of financial capital at stock and exchange markets) is primarily determined by its investment climate and general situation at the world financial capital market. In such a way, the position of Euro will depend on how the countries will solve the problems of creating favorable investment climate in the wide sense of this concept. The perspectives of Euro are quite interesting. Cashless Euro plays the important role at financial markets (Mcginty n.p.).
For example, if we take newly relocated emissions of governmental obligations, as well as governmental and corporate borrowings, and valuable assets, we will see that Euro share makes up approximately 40%.
This amount is higher that the role of Euro in international settlement of accounts and currency reserves. How can the influence of currency be determined? The role of the currency is determined by its place on the market. First of all we speak about dept market (the currency of emission).
Secondly the role of currency is determined by the share of corresponding currency during international settlement of accounts between the countries. Thirdly, it is determined by share of currency in international reserves of the countries and international organizations. Fourthly, the popularity of currency can be defined according to its popularity in other world countries. Speaking about international borrowings, Euro became a serious alternative to Dollar.
There are numerous reasons for introducing a common currency. For most EU countries today, the majority of international trade is with other EU members. The euro-zone will become an area of monetary stability in Europe. The new currency removes exchange rate risks from the internal market, cuts the costs of transactions and encourages firms to trade across national borders. It also forces EU ...
As for gold and currency reserves of the countries, many countries (for example, China) adopted agreements on considerable increase of Euro share in total volume of gold and currency reserves. The countries agreed to sell the part of dollars in order to purchase Euro. China is taken as an example, as this country possesses 200 milliard dollars in currency reserves. The decision of China government became the example for other countries. Russian Central Bank also increases its Euro share in gold and currency reserves instead of old European currencies. In conclusion I would like to say that although Euro became an important European currency, it will not replace Dollar. However, dollars positions will become weaker. Euro will increase its share in settlement of accounts between world countries and in personal savings of citizens, however, dollar will remain the guarantee of stability.
Bibliography After 3 years, euro still confounds some Brussels, 2005-01-14 (International Herald Tribune) By Thomas Fuller Dollar’s Recent Rise Against the Euro Worries U.S. Firms Michael R. Sesit and Craig Karmin. Wall Street Journal. (Eastern edition).
New York, N.Y.: Jul 17, 2003. pg.
C1 Euro is racing certainty. Sunday mail, 2002-09-22. Brendan Mcginty For Flashier Russians, Euro Outshines the Dollar Michael Wines. New York Times. (Late Edition (East Coast)).New York, N.Y.: Jan 31, 2003. pg.
A.4 Political Jitters Raise Notion of Euros End. Michael R. Sesit and Craig Karmin. Wall Street Journal. (Eastern edition).
New York, N.Y.: June 9, 2005.