Money, Macroeconomics, and Keynes: Essays in Honour of Victoria Chick - Vol. 1

By Philip Arestis; Meghnad Desai et al. | Go to book overview

20

THE FATE OF KEY CURRENCIES: DM, STERLING AND THE EURO

Stephen F. Frowen and Elias Karakitsos


1.

Introduction

This chapter aims to examine the prospects of the Euro by drawing on the experience of two key currencies, the Deutsche Mark (DM) and the pound sterling. Difficult and complex as it is to compare the history and destiny of the ancient pound sterling with the young DM, now abandoned after only fifty years in favour of the Euro, it is certainly an interesting and challenging, perhaps even an important, task at the present crucial point of European monetary developments.

Sterling is generally considered as a currency that was in long-term decline for most of the twentieth century. It may be that sterling has bottomed, but it is certainly premature to conclude that it is now on an uptrend. What are the reasons for this long-term decline? If sterling has bottomed and should now really be on an uptrend, what are the reasons? Can the Euro learn from that experience?

On the other side of the spectrum lies the DM. In its fifty-year history, the Deutsche Mark witnessed an increasing success. What are the reasons for its ascendance? If the objective of the Euro is to be a strong currency, can it avoid the mistakes of sterling and adopt the successful model of the DM?

An attempt is made in this chapter to answer some of these questions. It is organized as follows: The second section examines the emergence of the DM, while the third looks into the origins and development of sterling. The importance of the 1948 currency reform in the Federal Republic of Germany for the ascendancy of the DM is analysed in the fourth section. The prospects of the Euro are investigated in the fifth section, while some conclusions are drawn in the final section.


2.

The emergence of the Deutsche Mark

The DM was Western Europe's youngest and most successful currency with a lifespan of just half a century. It was replaced by the Euro in January 1999. Created by the Western Allies in collaboration with German monetary experts, the DM took the place of the discredited Reichsmark on 20 June 1948. It is indeed fascinating to follow the DM's ascendancy from a newly created currency to the

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