Euro vs Dollar
Iran finally makes the switch to Euros
Some say it is just a matter of national pride, others claim it is fundamental to America's economic success, and a driver behind the invasion of Iraq, but whatever the case, things are certainly changing. When I started travelling a decade ago, the dollar was the currency to take with you. Now, with perhaps the exception of Latin America, the currency of choice is rapidly becoming the Euro.
People want Euros. Borjan, a Serb travelling on the train with me from Croatia, was keen to know my opinion on the long term stability of the Euro, because he'd stashed away his life savings in this currency. The two Jordanian bankers from Copenhagen who were in the long queue for visas at the airport in Amman also agreed: trading in dollars was too risky. One had lost 15% of the value of a trade because the dollar had fallen so much in the days it took to complete it.
When you live in a country with a weak currency, you want something stable to trade and invest in. When that currency constantly loses value against your own currency, it becomes a liability.
Something tells me the switch mentioned in that article has little to do with the value of the dollar. Mostly, it's the article itself.
Originally Posted by The Bebe
I didn't say it was. It does seem to be the issue for most other countries and people that switch.
I'm putting my investments into European markets until the inevitable crash. ^^. Nor Asian stocks either, at least not until they become mostly economically independant of the US economy.
Dabbling in currency speculation is usually playing with fire.
I would be willing to bet within the next 15 years there will be points where the Euro/dollar rate fluctuates between the early 2000s rate and now at least twice.
Unless we get another Republican president for 8 years, causing the fragile internationally-propped up economy to collapse during some unforseen natural or man-made disaster. Then holding dollars will be the losing deal.
Originally Posted by Linoleum
It's the risk of that happening and losing everthing, vs. losing 35% or so.
I haven't seen an explanation of why a euro switchover is bad that makes any sense in light of this explanation by Krugman. The US loses a small interest free loan from the international market, big deal.
It isn't bad, but it is a reflection of how another nation views the long-term prospects of the US economy w.r.t the world. No nation is going to keep their foreign hard currency reserves in a currency that isn't likely to hold up over time. For a long time, foreign nations kept much or most of their foreign reserves in US$. As nations move from US$ to Euros, it reflects a growing independence of the US as the sole prop of the world economy. Which is good for everyone, including the US.
This is separate from currency speculation or exchange rate issues in foreign investments which is kind of where TSG's post was going. Speaking of which, emerging markets have had like the best year in human history. I <3 foreign investment.
World's End Supernova
There's a related front-page article in today's FTD:
1. According to FT calculations, as of late October the euro has overtaken the dollar as the currency with the biggest amoung of cash held worldwide. Calculated at current exchange rates, it's €592 billion for the euro vs €579 billion for the dollar, and they don't expect the dollar to close the gap.
2. The United Arab Emirates said yesterday they intend to reduce the dollar share in their foreign currency reserves from 98% to 90%, and to increase the euro share correspondingly from 2% to 10%. That's symptomatic for the general situation with foreign currency reserves: the euro is gaining ground but the dollar still enjoys a huge lead. The FTD quotes September 2005 shares of 66.4% vs 24.3%, changed from 71% vs 17.9% in 1999.
On a related note, the Japanese Yen seems bound to vanish as a reserve currency: its share dropped from 6.4% to a paltry 3.7% during the same period.