Analysis of the Euro
Being used by almost three hundred thirty million Europeans and the hundred million using it worldwide, the Euro has turned out to be the second largest reserve currency in the world. The euro is the official currency used by 16 of the 27 European Unions member States that comprises the Eurozone. The countries are Spain, Slovenia, Slovakia, Portugal, the Netherlands, Malta, Luxembourg, Italy, Ireland, Greece, Germany, France, Finland, Cyprus, Belgium and Austria. Several newly-membered countries in the EU are working on their adopting the single currency. After the remainder of the new EU countries able to complete their transformation, the status of euro would surely be stronger. The euro replaced the old national currencies, the French franc and Deutschmark, of the participating states in the European Monetary Union (EMU). Its launch was intended to create a possibly single currency in the European Union for several good purposes.
The euro was first introduced as a virtual currency on January 1st, 1999. The euro is a single currency that denotes the abandonment of separate national monetary policies and paving way for a new central bank to be set up. The European Central Bank Handles the monetary policies declared on the member states all over Europe, primarily the governing of interest rates. The establishment of the single currency would mean no further need for exchange rates within the participating states. For instance, Germany could not create and economic policy to fight unemployment not unless it comes directly from the European Central Bank.
The euro only became a real currency after the issuance of the notes and coins on the 1st of January, 2002. The exchange rates of the member states were permanently fixed in the rates of January 1st, 1999. The implementation of the euro was primarily laid down during the Maastricht Treaty signed back in February 7th, 1992 by all EU member countries. However, the countries Denmark and Britain negotiated opt-out clauses that indicated that the countries would have the right to decide at a later time if or if not the will participate in the implementation. They would hold referendums to get the votes of their fellowmen on whether or not join the single currency. The decision might both be of political or economic influence.
Some of its economic plus factors is that it would surely prevent currency fluctuation while also being beneficial to the travelling man within the EU. It would mean no more conversion within the 16 member countries that officially use the currency. And with more stability to the stronger single currency, the inflation rate within the EU members was significantly reduced with the launch of the euro, less inflation, more stable the economy. Also, the bloc formed in the EU would be more resilient than ever, being the second largest economy in the world, a single currency would provide unification to the EU while it further released the region from being pegged to the US. It was also seen that with the adaptation of the single currency, it would raise the standards of living and sustain the economic growth of the new Eurozone.
Another is that with the creation of the euro, price transparency within the Eurozone would be greatly increased. With the single currency in the countries, there would be a comparability of prices in European Trade. Additional economic advantages were seen with the establishment of a single currency within the European Union. Low interest rates would occur as the attached to the objective of this currency is the minimal inflation. This would mean that low interest rates for loan will be available and to the benefit of lenders from all industries. The countries that would adopt the euro currency would be encourage to trade within the member countries as it would cut transaction costs and supposedly have a more monetary stability.
But amidst all the economic purposes it brings the members, it would ultimately be the political reasons that would finally push the single currency into action. The political nature of European Single Currency can be dated back to the post-world war II. The Treaty of Rome of 1957 in which they engage in the ever closer union among the European peoples enshrined the principle carrying it over as the guiding principle of the confederation of the European states. Even then, the signatories understood the power a super-state could have. It definitely started as an emphasized economic society but gradually minimizing the economic aspect as seen on the transformation of the name of the body, from being the European Economic Community, to the European Community, and currently the European Union. Economic wise, there was never a single market within Europe it has always intended to establish a United States of Europe. It starts with the creation of the single currency of the super state, the euro. It is part of stages needed to be done to the road to the super state. The countries that consented to the creation of the single currency ultimately handed over their power to control their economies. Surely, the economy of the member countries could have functioned perfectly well without the euro, but the super state, like any other state, needs their own currency.
This would be confirmed by former German Chancellor Dr. Helmut Kohl in his speech at the Bertelsmann Forum, 3rd April 1992. He said that the Treaty of Maastricht was a foundation stone for the accomplishment of the European Union. The European Union Treaty presents a new and important stage in the development of the European Union that within a few years, would lead to the United States of Europe, just like the founding fathers of modern Europe imagined of following the last war.
The integration of Europe started with the Franc-German alliance during the post-war and then the alliances between other powerful nations. The drive of establishing a United States of Europe go back many years and somehow influenced the current state of the European Union. Fritz Tyssen in I Paid Hitler said that all impediments to the future founding of the United States of Europe should be ultimately removed. Tyssen was a German industrialist who financially aided the emergence of Hitler in the 1920s and 1930s. Another was Ernest Bevin who said that the Labor movement must continue a great education work promoting the rise of a United States of Europe. Bevin was a British trade union leader who emerged to become the Minister of Labor and National Service in the Second World War coalition government, and also becoming the Foreign Secretary in the Labor Government after the World War II. Strangely enough, the two coming from different ideologies, one from the right-wing capitalism and the other from socialism, support the same ideology of the establishment of the United States of Europe.
The European Monetary Union was built through the Treaty on European Union. The single currency lays down huge and permanent transfers of power from democratically elected national officials to unaccountable and unelected institutions like the European Central Bank and the European Commission. It would mean that any country who joins the EMU and adopts the euro would be giving up the electorate and any type of democratic power to almost all fundamental matters of their lives. The European Central Bank has absolute control over decision making bodies making any national democratic institution irrelevant.
Characteristics of the Euro
The eurocents, dividing the euro into 100 cents, are coins used all throughout the participating countries. Coin denominations are 2, 1, 50c, 20c, 10c, 5c, 2c, and 1c. Finland rounds up any transaction to the nearest 5c by law for lesser use of the coins. Netherlands does the same but only by voluntary agreement. Nevertheless, the 2c and 1c euro coins are still legal tender on both the countries.
All circulating coins consist of a common side with the map of Europe in the background, and the denomination of the coin. The first euro coins, except the 5c, 2c, and 5c, comprises of a map that only showed the 15 participating States when the euro was first introduced. By 2007 or 2008, the old map was replaced by a map of Europe then showing countries outside the Union like Norway in all the coins except for the three smallest coin denominations. The three kept their old design, showing the map of the 15 Member States of the EMU by 2002 somewhat higher than the rest of the map. The common sides of the coins were designed by Luc Luycx, a computer engineer from Belgium. His signature the connected LL can be seen in the front of every euro coin. The design of the other side coins depends on the country that has issued it. Every Member State has their national design to the coin. Though with several national designs, all the coins are accepted all throughout the Member States that had adopted the euro.
Commemorative coins have also been issued, only changing the national side of the coins. The commemorative coins can be both nationally issued or commonly issued coins. The 2004 Summer Olympics was commemorated with the coin issued by Greece an example of a nationally issued commemorative coin while the 50th anniversary of the signing of the Treaty of Rome on 2007 is an example of a widespread coin produced in all the Member States. The national commemorative coins are also accepted in all of the States. While some collectors coins with various denominations, also has been issued, are not intended for general circulation and is not a legal tender in all Member States, only accepted in the Member State that issued the coins.
The euro banknotes bear the design made by an Austrian designer Robert Kalina. The banknotes carry the same design on both sides. Some of the denominations, especially the larger bills, are not issued in all countries but still remains legal tender throughout the Eurozone. All the notes, namely the 5, 10, 20, 50, 100, 200, and 500, have its own distinct color to identify the denominations while also being dedicated to an artistic period of European architecture. The face of the note highlights windows or entries whereas the back features bridges, all of which were transformed into a nonspecific structure. Kalinas first design features specific designs of bridges such as the Pont de Neuilly and Rialto. However, the final designs were rendered to be more generic but even though, the ultimate design still show highly similar features to the models. The reverse face also contains the geographical map of the Eurozone.
The euro would ultimately create its own currency symbol. The Euro sign ( ) was first presented to the Eurozone on December 1996.The 10 proposed designs were narrowed down to 2 designs by a public survey and the final decision was left for the European Commission. The design was assumed to be of Alain Billiet s design and the winner of the designs match. The symbol was supposedly based from the Greek epsilon () which was a suggestion pointing to the cradle of European civilization, while the letter also represent the first letter of the word Europe. Finally, the double bar, 2 parallel lines crossing the letter, signifies the stability of the euro.
The euro sign has no official standards on its placement, whether before, after or inside the figure. As example, the countries Ireland and the Netherlands both placed their former currency signs before the figure and thus, the same is used for the euro. However, many countries including Spain, France and German often use the symbol either succeeding the figure or in cases where eurocents are used, after the euro figure, ultimately in accordance to their previous conventions for their prior currencies. Also, there is no official recommendation made for the use of the cent sign. Usually, the cents are represented in euro by decimals as 0.50 or -.50, rather than using 50c. The most common used abbreviation of the cent is by the letter c, however the HYPERLINK httpen.wikipedia.orgwikiC2A2 o sign is also accepted. Several other abbreviations are used in different countries, Spain uses snt , Greece uses the capital letter lambda HYPERLINK httpen.wikipedia.orgwikiCE9B o that means lepto, Germany using ct . Nevertheless, all these symbols are accepted in all of the member states, and are just merely symbolical which ultimately does not affect any of the main functions of the currency.
Both euro banknotes and euro coins have their own way of distinction from different denomination. For example, the euro coins have different diameter, thickness and edges that correspond to their value. The smallest of them all, the 0.01, has the smallest diameter being at 16.25mm while also having a plain edge and a dark copper color weighing about 2.30g. In contrast, the 2 has a diameter of 25.75mm, having a sophisticated edge design, letters varying from each country embedded in mills, and being at two parts, a center and a ring, weighing in total about 8.50g. This will ultimately make counterfeiting a lot harder from the genuineness of its designs. The banknotes, aside from having wide color range, also has their specially embossed characters, hologram images, watermarks, security thread, magnetic ink and several others to make it very hard for counterfeiting.
Direct and indirect usage of the Euro
Direct use of the Euro
The euro officially circulates in the Eurozone area composed of the 16 Member States of the European Union, specifically Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain, totaling about 326 million people of different race. All the members of the European Union except the two countries, Denmark and United Kingdom, are compelled to eventually use the euro. By 2011, Estonia, Lithuania and Latvia are expected to join the Eurozone matter of authorization of the council after undergoing checks to the criteria set. With the eventual joining of the remaining EU members, the continuous and steady growth of the euro is seen.
Also, joining the members of Eurozone in the use of the euro, several countries are also using the currency. Montenegro and Kosovo, plus the microstates of Andorra, Monaco, San Marino and Vatican city, and added the non-EU member countries Andorra, Akrotiri and Dhekelia, Kosovo, Mayotte, Miquelon, Monaco, Montenegro, Saint Pierre, San Marino, and Vatican city, the direct usage of the euro foreign to the EU involves at least 5 million people.
Other countries use the euro via the Exchange Rate Mechanism II (ERM II). The ERM was first introduced in 1979 which purpose was to reduce exchange rate unpredictability and create monetary stability in Europe. And with the launch of the euro, it functioned as a link between the non-Eurozone members while also showing the strength of the currency that can be future Eurozone members. The ERM II becomes a transition stage from a countrys national currency to the new single currency, the euro. The countries Cyprus, Malta, Slovakia and Slovenia were under the ERM II Central Bank Agreement until the time they separately left the ERM II to officially use the euro. The countries Denmark, Estonia, Latvia and Lithuania are still under the ERM II CBA to hopefully, someday pass the criteria to finally be able to officially use the euro as their sole currency.
The use of euro in trade has grown since its launch and had been tagged as an economic and or political alternative to using the United States dollar. And with its increasing usage for trade currency, the euro has become the only real competitor of the dollar as a reserve currency. The international use of the euro has grown ever so much since its launch in 1999 and when the euro bills and coins were finally minted, the territories that used pre-euro currency were inherited and formally given the power to mint their own euro-coins only official inside the Eurozone. The states outside the EU, whom had adopted the euro to be their official currency, had the right to mint their own coins after formal adoption and a monetary agreement. Monaco, San Marino and Vatican City used member states pre-euro currencies like the Italian Lira and the French franc.
Usage as a reserve currency
Before a currency can be used as a reserve currency, it needs to pass the criteria of being an international currency first. An international currency needs to be able to fulfill the following conditions it can be used as a medium of exchange, stores value and is a unit of account not only for residents but also for the non-residents of the country. In theory, these roles can be fulfilled by several currencies, but historically, the currency used most as medium of exchange is also the one which stores value. Monetary authorities need to sustain their use of the exchange rate in their monetary policy framework, intercede with the foreign exchange markets, and most promising to them is to safeguard their wealth. They fulfill this with the use of their selected international currency and after fulfilling these functions, the official sectors refer to the currency as a reserve currency. Thus, the introduction of the single currency in the Eurozone became a charismatic market particularly to those non-EMU exporters.
Being the most important role of a reserve currency, as a medium of exchange, it was linked to financial mandates to choose wherein intervention in foreign exchange is possible. As history had shown how important it is to put most of one countrys reserves in more liquid assets. This is for contingency and potential necessity for an intervention in financial markets. But there is a setback to this investments, as when there is a need for an immediate emergency and a need to turn assets into cash, at both a short time and low cost, and in problematic market situations. And with the given limitation, several experts Swoboda, Krugman Hartman individually suggested that there was influence behind the choice of intervention currency with the liquidity conditions in foreign exchange markets. In the case of a bilateral exchange rate, intervention is sometimes more effective if done so in a third, more traded currency.
Though the euro supposedly become as liquid as pre-euro currencies, it was not clear however, whether the euro has become more or less liquid compared to the USD. A survey last 2004 from the Triennial Survey of Foreign Exchange and Derivatives Market showed that the euro showed a strong 37 of all foreign exchange transactions but less than all the euro constituents combined. The difference must have been from the departure of the intra-EMS foreign exchange trading. The results for other currencies showed that the dollar fell 5 from 94 in 1998 to 89 in 2004, while the yen was strong, doubling from 10 to 20. The combination of the dollar euro grabbed 28 of the global total as the two most traded currency followed by dollar yen with 17 and dollar sterling with 14.
An international currency also has to act as a unit of account. In private use it is linked to invoicing while in official use it is connected to the exchange rate as a monetary anchor. Even after the gold standard collapsed, the USD still remained the prominent anchor currency. It was only recently that the euro started to gain ground for its increasingly vital part in the international exchange rate agreements. And finally, an international currency needs to be a reliable storage of value. It ideally has to have the same or close to the same purchasing power in the future. The euro should have the purchasing power in the future despite of changes such as inflation to be a good storage of value. Economists perceived euro to continue on gaining stability as years pass by. There comes the link to reserve managements, the maximization of returns as the level of risk, liquidity and capital also increases.
There had been a drastic change within the status of euro as a reserve currency that after only a decade, it had become the second most widely-held international reserve currency only after the USD. The figures show that from less than 18 percent in 1999, the euros share as a reserve currency had increased to almost 30 percent currently while at the same time, the dollar fell from 70 percent to only a little more than 60 percent. Euros share in all of the currency reserves in the world was at USD 1.1 trillion with almost one-third of all the currency reserves in emerging and developing economies and almost one-fourth in advanced economies.
Currencies pegged to the Euro
Currently, a total of 25 states and territories have their national currency pegged to the emerging euro. It includes several members of the zone franc, countries or territories pegged to pre-euro currencies, and territories legally bounded by Eurozone members. And like the EU members that had adopted the use of euro as their only currency, the exchange rates of the countries pegged to the euro has a fixed exchange rate.
Fourteen West and Central African countries which were members of the zone franc have their currency, the CFA franc, pegged to the euro. The CFA franc was a currency formerly pegged to the French franc and now is pegged to the euro. Eight countries comprises the West Africa, the countries Benin, Burkina Faso, Cte dIvoire, Guinea-Bissau, Mali, Niger, Segal and Togo compose the West African Economic and Monetary Union (WAEMU), and the countries Cameroon, Central African Republic, Chad, Republic of Congo, Equatorial Guinea, and Gabon are members of the Central African Economic and Monetary Community (CEMAC) . The two African regions have their own separate economic and monetary groupings as seen with the WAEMU and CEMAC, and issue their own separate CFA franc.
The WAEMUs franc de la Communaut financire de lAfrique (known as CFA franc) is being issued by the BCEAO (Banque centrale des Etats de lAfrique de lOuest) while the CEMACs franc de la Coopration financire africaine(also called as CFA franc) is being issued by a separate bank, the Banque des Etats de lAfrique centrale(BEAC). The different CFA francs are only legal tender only on their respective regions and their central banks still sustain the same parity with the present euro after arrangement with the French Treasury.
The French Treasury remains to be the sole guarantor of the convertibility of CFA francs into euros even without any monetary policy insinuation from the European Central Bank or Bank of France. The CFA franc is in fixed parity with the euro at CFA655.975 1 as based on the January 1, 1999 fixed exchange rate of the French franc to the euro, and the CFA to the French franc.
Another currency pegged to the euro is the CFP franc. The CFP franc used to be pegged to the French franc and with the joining of France to the Eurozone, the French franc was abandoned for the single currency, the euro. The CFP franc is used in the French overseas collectivities. The countries French Polynesia, New Caledonia, and Wallis and Futuna Islands are the countries running the CFP franc. It originally stood for Colonies Franaises du Pacifiq (French colonies of the Pacific) but eventually was changed to Communaut Financire du Pacifique(Pacific Financial Community) and then currently to its official meaning Communaut Financire du Pacifique(Pacific Financial Community). Its currency code is XPF in the international market. The CPF is in a fixed parity with the euro today in the rate of XPF119.2529826 1.
Three former communist countries which were pegged to the German mark now also pegged to the euro. The countries Bosnia-Herzogovina, Bulgaria, and Macedonia have each of their national currencies, convertible mark, Lev (BGL), and Denar MKD respectively, pegged to the pre-euro currency, the German mark. Both the Bosnia-Herzogovina and Bulgaria are in fixed exchange rate at 1.95583 of their currency is equal to 1 euro, while the Denar MKD of Macedonia is at MKD60 to 1 euro.
Also, two European Union member countries have their national currencies pegged to the euro, Denmark and Estonia. The Danish Krone of Denmark was originally pegged through the European Exchange Rate Mechanism (EERM) and at the rate of DKK7.4265 1. Estonia and its Kroon (EEK) is in parity with the euro at the rate of EEK15.6466 1.
Other currencies pegged to the euro are the currencies of Cape Verde, Comoros and Morocco. The currencies of the 2 prior countries were pegged to Portuguese or French currency before, while the latter is slowly becoming a Free Trade Area with the EU by 2012. The Cape Verde Escudo is in exchange with the euro at a rate of CVE110.2651 1 while the Comoros franc is lower with the rate of CF491.96775 is to 1 euro. Finally, The Dirham is roughly pegged to the euro at MAD10 is to 1 euro.
Eurozone Economies
Effect on the economy
A surprising result seen from the use of the single currency in the Eurozone is that it actually had a big effect on outside firms which were not trading with any euro-area market before. The introduction of the euro had persuaded firms to export products that they had formerly only sold domestically. And it was the exporters from the UK that had benefited the most, both in the old trade classes and the new ones. It was a clear contradiction to the often-heard political argument that the United Kingdoms refusal to join the monetary union was a great harm to the export sector. With the euro also came the stimulation of the imports from the euro area, and the findings seemed really healthy economies, from Canada, Denmark, Ice land, Japan, Norway, Switzerland and U.S. The only casualty could be the previously untraded areas in which the imports from the euro area have declined, the only sign of digression that does not compare to the overall trade benefits enjoyed by the UK.
There were several predictions from the launch of the euro and its effect on the global economy and the dominant currency that is the dollar. Some had seen the euro to rival or even surpass the dollar as the worlds most used international reserve currency. But it should be noted that there is theoretical background to this formation of the monetary union and its effect on trade.
The Economic and Monetary Union (EMU) of Europe was officially begun on January 1, 1999 among the first 11 countries of the Eurozone (Euroland), euro became the single currency while the European System of Central Banks became the sole authority for a common monetary policy to the implemented in the region. It was a historical day, as for the first time since the Roman Empire a broad part of Europe will have the same currency once again, and was uncommon that the euro will not be issued by any sovereign government.
Euros effects on trade were somewhat inferred by the economists beforehand. It was known that the combined population of Eurozone was larger than that of the United States. But it was the United States GDP that was larger than the Eurozones GDP. The Eurozones trade merchandise exceeded the United States trade merchandise. Hence the two regions are close economically speaking, but the United States have a less population density that that of the Eurozone.
A seen positive effect to the euros introduction was the fact that an intra-Eurozone trade would not need any purchase or sale of foreign exchange while also dismissing any uncertainties with future exchange rates as they have only a single currency. Moreover, the countries within the Eurozone are encouraged to trade with one another with prices quoted in the same currency in all of the euro-operating countries. Prior to the euro, there is a cost to exchanging currency. Though it may be small, theoretically it will allow consumers to complete trades which were before unprofitable. With the euro as a single currency, it was obvious that one of its most evident benefits is that it would be possible to create intra-Eurozone without any other charges as if it was a domestic transaction for electronics payments. Recent data suggest that the introduction of euro had increased the trade rates within the Eurozone from the lowest bound of 3 to the highest of which is 10.
The uncertainties that company who want to make a cross-border investment face are the exchange rate risks. Any company or individual would think twice investing a hefty sum of money to a country whose currency is fluctuating. It would be disastrous for any company or individual to be faced with too much unanticipated exchange rate movements.
Thus, with the benefits that euro brings, the consumers and producers are more likely to trade with one another and are more likely to buy products made in other Eurozone countries. With those circumstances, the trades within the euro-adopting countries will most likely increase in comparison to the trade with the rest of the world. Imports and exports to outside the Eurozone are seen to increase precipitously compared to the past. By eliminating the unanticipated fluctuation within the exchange rates, there will be a much higher investment turnout as the euro progress. With these benefits, the euro will become an investment-friendly currency especially to those inside the Eurozone. The banking sector should find it easier and business-friendly to increase the banking services they provide across the countries in Eurozone and even beyond.
Another important benefit to the economies of Eurozone members is the economic stability it would provide. Any stable and successful economy would have their inflation close to the floor, and this is the goal of the single currency, making the inflation to go down, and stay down. It is a usual scene that a company would choose to invest in a country with low inflation rate rather than a similar country but with a higher inflation rate. It is because of the undesirable consequences of inflation. It acts like a seigniorage and would obviously discourage investments. As inflation is a serious economic matter, some states would take serious steps as to keep inflation at its lowest. The European Central Bank is on a mission to maintain inflation at a low rate, not to mention its independence from government pressure to worry about growth and unemployment, unlike the United States Federal Reserve which needs to maintain both. Consequently, with the macroeconomic stability that the EMU and the euro bring to its members, it creates more conducive atmosphere for the economy of its member countries.
An extra benefit that the formulation of the single currency had brought to its member countries concerns the interest rates and price convergence. The interest rate of the member countries which are economically weak decreased prominently. The countries which felt the effects of this decrease in interest rates are Greece, Ireland, Italy, Portugal and Spain. The market value of the firms on the said countries increased with the joining of their country to the Eurozone that also would lead to economic stability on the said countries. With their accordance to the criteria needed to adopt the euro, the countries would have had several economic benefits whether as a country or a region.
Price convergence is another of the positive remarks seen with the euro. Although some saw that the price convergence that was insinuated by the launch of the euro failed, some saw the evidences of price convergence within the Eurozone area. The convergence was more appreciated in the automobile industry where the prices of European cars slowly converge to attain only very slight difference between neighboring countries. The major price convergence movement was mostly seen in the 1990s, long before the introduction of the euro, but in the next few years after the adoption of the euro, less price convergence was seen, meaning more price differentials. One reason perceived as to the differences in the results in several studies was because of the rise and fall of the figures but ultimately finding its way to resurface by the year 2003 as seen by a recent study. All in all, the entire euro would have still affected the current state of prices, according to another study done by a premier research company, proving, or at least giving some evidence on this matter.
Present Exchange rate compared to the Euro
Euros exchange rate regime is said to be flexible or floating. Euro as a floating exchange rate has its currency value to be allowed to vary or change in accordance to the foreign exchange market. When the Euro was introduced, its exchange rate fell solidly against the other foreign currencies particularly that of the U.S dollar. The first exchange rate between the Euro and U.S dollar stood at US 1.18 to one Euro. It fell to a low in October 2000 at US 0.8228 to one Euro. In July 2002, the Euro began to progressively appreciate and it regained parity with the U.S Dollar. This happened after the coins and notes have begun to appeared in January 2002 and the substitution of every national currency. Since December of that same year the Euro had only increased in value and had not fallen under parity with the U.S dollar.
It was on May 2003 that the Euro exceeded its initial exchange rate of 1.18 trading value. It was the first time to surpass it first exchange rate trading value and by the end of 2004, the value of Euro reached 1.3668 while the U.S dollars value fell against the other chief currencies in the world. In July 2005, the value of Euro momentarily weakened against the U.S dollar at an exchange rate of US1.18 to one Euro. However it began to be stable again all through the remaining quarter of that year.
At present, the exchange rate of Euro with the U.S Dollar is at US1.34060. For the other countries in the Americas, the Euro-Canadian Dollar exchange rate stands at 1.36590 per Euro, Euro-Mexican Peso rate at 16.57820 Mexican pesos per Euro. In the Asia Pacific region, the Euro-Thai Baht exchange rate is at 43.38360 Thai Baht per Euro and 4.38930 Malaysian Ringgit per Euro for the Euro-Malaysian Ringgit exchange rate. The Euro currency has been definitely showing impressive exchange rates to foreign currencies especially over the U.S Dollar.
Conclusion
In accordance to several economic predictions made during the launch of the single currency of the Eurozone, empirical studies also have shown promising results to the effects of the euro. The introduction of the euro back in 1999 had influenced financial assets, movement of goods, and the people themselves of the Eurozone. Additionally, the economies of the Eurozone members very much welcomed the changes and more importantly the benefits that their joining in the European Monetary Union and adaptation of the euro had brought them.
It was seen through several studies that the euro truly had given overall strengthening in the economies of the European countries. Results had shown that there was an increase in the integration of both bond and equity of euro area market since the launch of euro. However, the equity markets were behind and limited only to large Eurozone economies, while the bond markets of all Eurozone governments were at their high points.
An implication brought about by the euro is the breaking the link between state and money, thus leaving the power to control money out of a states hands and on to a central authority, that is the European Central Bank. This could entice countries into high degree of trade and financial integration overtime. The euro could be a de jure or de facto anchor currency as legal tender someday, giving way for policy options to create an advantageous atmosphere for economic and financial development. The regional integration done for the adoption of the euro was a step towards creating a euro bloc a single market or an economic union, making an especially strong intra-Eurozone economic stability. Again, this is obviously in conflict with national capacity to control monetary policy, but needed to be discontinued on to greater good for the Eurozone countries.
The European Union had set up stage to start a long process of integration which had been seen even by their ancestors over four decades ago. The Eurozone featured, at least in principle, full mobility of goods, capital and labor. There were no longer a country-wide subsidies and regulation, only the ECB has the power to lead, and thus prevent favor to any domestic market and in fact encouraged the highest intra-area trade in a long while. There was now a competitive market within the area, although probably affecting some firms, ultimately helped the Eurozone economy in general.
In addition, several economic featured by the adoption of a single currency was experience by Eurozone countries no more unstable exchange rates, high degree of openness with a co-Eurozone country, much more stable economy low inflation rates and lower interest rates, price convergence and ultimately, monetary union. The lack of need for exchange rate in the region, as they have a single currency, would encourage more investment as it removes extra uncertainty brought by unpredictable exchange rate movements. This was slowly the scene in the Eurozone, investments that were before impossible to be done slowly takes the Eurozone to surprise. Currently, more and more investors are looking to go for international investments an intra-Eurozone investment was ultimately the same with a domestic investment, killing the need uncertainties by the foreign currency exchange.
An impression that the euro have risen to international use was seen through the years. Aside from the Eurozone money market being already highly integrated and liquid, higher trading volume and lower bid-ask spreads for short term maturities. Also, a push for the integration of national securities markets and settlement systems had already begun. The euro started a dramatic increase of competition in the banking sector also pushing forward for securitization and consolidation within the sector. Any securitized financial instrument would be of better shape for international trades. The euro had encouraged development within the domestic market for corporate bonds, and given time, will emerge as one of the strongest, if not the strongest, bond markets in the world.
All things considered, the introduction of the euro had been a major mile stone. It was a step towards the dreams of the forefathers of Europe to see the regions slowly emerging as one. This has been a topic of envy in other regions such as the Asia area, starting to create suggestions of a euro-inspired accomplishment of creating a single currency, and ultimately region collaboration for a stronger economic development. Rest assured, the euro is supported by exceptionally solid foundations.
The economic effects that the euro had brought the countries were tremendous. The economic stability posted by the euro showed great defense against the recent recessions. Although many did not believe that the euro could stand this test, it proved to be more of a trial against economic storms that were likely to hit an economy as big as the Eurozone. And with the relative strength shown by the euro, more and more started to believe in the capacity of the single currency of the region. The inflationary and interest rate advantages posted by the euro had helped the member countries, more especially those which had a weaker currency prior to the integration. With the outcome of the euro in the hands of a separate institution, the ECB, it is held to be the emerging competitor of dollar in the currency reserves around the world.