EURO VERSUS DOLLAR?
The European economic and monetary union with the birth of the Euro on Jan. 1, 1999, is probably the most important event to occur in the international financial system since the collapse of the fixed-exchange-rate Bretton Woods system in the early 1970s. This could result in a global exchange-rate realignment and thus influence worldwide trade and capital flows.
If financial markets accept the Euro, this fact soon could reduce the role of the Dollar.
The Euro has many of the attributes the Dollar now has. The combined economies of the 11 Euroland countries-Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain-account for nearly a quarter of the world economy and roughly 75 % of the U.S. economy
Euroland is also the world's largest trading bloc, accounting for around 40% of world trade, including trade within Euroland. Commerce between the 11 Euro-zone nations and all others accounts for 19% of global trade, slightly more than the U.S.'s 17 % share of world trade. Brazil, Britain, Bulgaria, Chile, the Czech Republic, Denmark, Greece, Hungary, India, Norway, Peru, Poland, Russia, South Africa, Switzerland, Sweden and Turkey- now have Euroland as their major single trading partner.
Euroland will represent a bond market that at the end of 1996 equaled $6.1 trillion, or 63% of the size of the $9.6 trillion world-wide market for Dollar-denominated bonds.
These figures will even significantly increase, if other European countries join the Euro-bloc.
If the Euro replaces the Dollar as the international currency most used for financial asset and foreign exchange transactions, the advantages enjoyed by the U.S. governnment, corporations and financial institutions will shift to Europe. This scenario would have worldwide impact.
The Federal Reserve estimates that of the $443.6 billion in U.S. currency in circulation, roughly two-thirds is held offshore. By not having to borrow and pay interest on that money-, the U.S. Treasury saves $15 to $ 18 billion a year. If part of that will be absorbed by the Euro, to live the american dream may thus become more expensive.
These are only a few
aspects, but that should be sufficient to emphasis the fact that America cannot ignore the
Euro.
Data based on an article from WSJ, September 28.98
last modified: 05/30/06 13:43