European Economic & Monetary Union: Impact of Currency Will Spread Far beyond European Boundaries

Article excerpt

H ave euro, will travel?

The introduction of a single European currency will have implications far beyond "Euroland", and even those EU nations optimistically called "pre-ins" by euro-supporters.

The euro will become a reserve currency - one held physically or electronically by central banks across the world in their reserves. The sheer size of the European economy and market will ensure that.

It is also set to become one of the great currencies used in small, day-to-day transactions across the world. It will replace the deutschemark as the preferred note in Eastern Europe, and possibly replace the Franc in France's many former colonies.

But some pundits foresee the euro will become a major rival to the US dollar, and possibly overtake what has been the universal currency since the end of the Second World War.

Eunice Lau, economist with the Confederation of British Industry, said: "I believe that just because of the scale of European economy the euro is poised to rival the dollar.

"It is attractive because there has not been a currency of such that has been able to rival the dollar as a vehicle of foreign exchange for so many years.

"The International Monetary Fund believes it will rival the dollar because it will have the same strength and degree of liquidity - euro holders will be able to move it around the world and use it at will.

"A lot of countries, like China and Singapore, have said that they are interested in switching their reserves form dollars to euros."

Richard Fenton, KPMG's expert on the euro in Birmingham said: "From what I have seen of IMF's report, they believe that the euro will be the dominant currency. A number of business groups and governments will sell dollar assets and invest in euros.

"One of advantages of the euro will be stability. You will have a very strong body of countries supporting the new currency, therefore volatility will be reduced as peaks and troughs are smoothed out."

Yet most experts believe that the transition from a dollar to a euro-based world economy, should it come around, will be slow.

The US economy is still massive; with world-wide recession predicted, punters may prefer sticking with the mighty greenback they know well rather than taking a risk on the euro; there are still huge numbers of dollar bills sloshing around the world - mo re outside of the US than within; and the US is both military and politically strong.

The other factor which will determine the weight of the euro will be its relative value against other currencies.

Most economists, even those within the rigidly no-saying Institute of Directors believe, for a number of reasons, that the euro will begin life as a relatively strong currency. …