Euro’s chances of taking over the greenback are still... HUGE!

IIPM PUBLICATION

It’s almost like a Mike Tyson versus Evander Holy field fight in progress. While one round goes to one boxer, the next round could as well go to the other; and so on so forth, till one of them succeeds in, uhh, biting off the ears of his opponent. Well, the world has been listening to the debate of euro versus dollar (of which currency will rule global trade) since too long, with each side claiming victory after every quarter, and with the world waiting with ‘bloated breadth’ to see who bites whose ears off first. As a summary, though the fight has still not ended, let’s see a consolidated picture of who is winning and who is losing!

Factually, at least in the latest round, it’s the euro that seems to have come out smarting because of the hits it has been suffering, of late, in the hands of global analysts, who claim the dollar can never be beaten because of a few critical issues. Of the points they quote, an important one seems to be that many developing countries have locked in their reserves in dollars and won’t let the dollar fall (in terms of exchange rate) in fear of capital losses. Secondly, there are vested interests of many non-dollar countries in keeping the dollar’s exchange rate high (and their domestic currency’s exchange rate low) in order to maintain their export competitiveness. In this context, a look at the exchange rate of dollar against countries like Japan will reveal that the dollar has, in fact, appreciated as much as 18% since Jan 3, 2000. On the other hand, the Euro region itself is quite against the concept of allowing the euro to rise, because if the euro continues its way up, it will have a significantly negative effect on the exports of that region and will drag down the European economy to its knees. And this is no incentive for the EU to keep the euro appreciating against the dollar.

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative