Essay Title: 

The Euro represents an ideal currency

March 24, 2016 | Author: | Posted in economics, mathematics and economics

The Euro Represents an Ideal Currency

Introduction /Background

In July of 2002 , Europe adopted one uniform currency – the euro – to replace all the individual currencies of the area with the hopes of unifying itself . The only countries to hold out were Britain , Denmark and Sweden . However , the American dollar competes with the euro on an international level . Many economists speculate if the euro should be made the international rate of exchange . It seems that some resistance to this idea is inevitable . In the 1980s and early 1990s the European Union struggled [banner_entry_middle]

with managing the fluctuations of the many different currencies in Europe (Frieden , 1998 Hartman , 1999

The pressure to proclaim the Euro as a possible rival to the US dollar was strong . According to Dr . Cohen (2003 ) and economics professor at the University of California at Santa Barbara

Resentment has long simmered among Europeans sensitive to the inordinate power that the greenback ‘s widespread popularity gives to the United States – America ‘s `exorbitant privilege ‘ in Charles De Gaulle ‘s memorable phrase . Europe is the equal of the United States in economic output and trade . Why should it not be America ‘s equal in monetary matters , too ? Economic and Monetary Union (EMU ) was meant as well to challenge the dollar for global currency supremacy

Clearly , the EMU is driven to support the euro as a beneficial alternative among international currencies

Research Questions

This examines the research and data available in to answer the following research questions

Is the Euro suitable for international use

One distinct advantage that would result from a large number of countries using one currency is the possibility of seigniorage , which is an equivalent to a loan with no interest . It is given to the issuer of currency that is widely used on an international level because the money will stay in circulation in that country indefinitely . Thus , the issuer of the currency has a distinct privilege in the international marketplace (Dunn , 1999

Is the Euro superior to the American dollar as the ideal currency

The Euro has been closing on the dollar for the past twenty years with the most narrowing occurring between 1999 and 2004 . According to Dunn the euro ‘s future as the world ‘s leading currency will depend on two factors : 1 ) the participation of the United Kingdom and other Euro holdouts in the European Union and 2 ) will the value of the dollar continue to decline based on its inflation and depreciation (Dunn 1999 . Under two important scenarios the remaining EU members including the UK , join EMU by 2020 or else the recent depreciation trend of the dollar persists into the future the euro may surpass the dollar as leading international reserve currency by 2022 (Dunn , 1999

What if any problems might the Euro pose as an international currency

The Euro must overcome the United States ‘ dollar in foreign private business . One reason why the dollar is so strong in this arena is the fact that it is so inexpensive to… [banner_entry_footer]

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