*NEWS* EURO RIVALS OTHE CURRENCIES

[Anonymous]

5-Year-Old Euro Rivals Other Currencies
FRANKFURT,
Germany 01/07 – The surging euro is confounding critics who once
doubted it could rival the dollar, pound and yen – but Europe’s shared
currency still annoys some consumers five years after its introduction
in cash form.In 2006, it has surged in value, rising nearly 14 percent
to 20-month highs and is about three or four cents off its all-time
high of $1.36 in December 2004. It’s a strong turnaround from an
initial plunge to as low as 82 cents in 2000.”When it first started –
and even before it hit markets properly, everyone was very skeptical
and negative on the whole thing, and that’s exactly the performance we
saw,” said David Jones, chief currency analyst for CMC Markets.”That
initial negative view is history now,” Jones said. “The euro is seen as
a strong global currency now.”However, some consumers still grumble
about using the euro, with 41 percent of people in the 12-nation euro
zone saying they still have difficulties using it, according to a
recent Gallup poll for the EU. Many still calculate large purchases in
the old currencies.And having a single currency hasn’t closed the
growth gap between Europe – where one or two percent annual growth
constitutes an upswing – and more dynamic economies in the United
States and Asia.But companies and governments can now raise money
across borders with their investors no longer facing the risk that
stock or bond holdings will be eroded by exchange rate fluctuations.
And travelers no longer have to waste time and money at airport
exchange booths, or return home with a pocketful of foreign
currency.The euro – which was initially introduced on financial markets
in 1999 – has also increasingly gained acceptance as a foreign currency
reserve in the coffers of companies and governments from China to the
Middle East.”Indeed, there is the very real possibility that several
countries could switch a proportion of their foreign currency reserves
out of dollars over time to the euro,” said Howard Archer, chief
European economist for Global Insight in London.According to the
International Monetary Fund, global foreign currency reserves during
the first quarter of 2006 stood at approximately $4.34 trillion. Of
that, the dollar accounted for 66.3 percent with the euro, the British
pound and the yen accounting for 24.8 percent, 4 percent and 3.4
percent respectively.In November, China’s central bank said it was
mulling whether to reduce the weighting of dollars in its reserves.
Central Bank Governor Zhou Xiaochuan said his country was “considering
lots of instruments to diversify its foreign exchange reserves.”

Archer said other countries have expressed similar sentiment.
“Also
potentially significant were indications from the central banks of
Qatar, Sweden, Russia, and the United Arab Emirates in recent months
that they are either diversifying away from the dollar in their
foreign-exchange reserves, or considering doing so in the longer term,”
he said.On Thursday, the Emirates’ central bank governor said the
dollar’s weakness is prodding his country to convert 8 percent of its
foreign exchange reserves into euros.About 98 percent of the Emirates’
nearly $25 billion currency reserves are in dollars. That may decline
to 90 percent in six to nine months if the bank’s directors approve the
switch as is expected, Central Bank governor Sultan Bin Nasser
al-Suwaidi said.Peter Morici, a professor at the University of Maryland
School of Business, said the dollar’s supremacy, while vibrant, could
suffer because of larger U.S. trade deficits and the urge to
diversify.”The euro is the prime candidate for diversification,” he
said, but added that Europe’s struggles to maintain single-digit growth
and high unemployment rates would keep the euro from supplanting the
dollar as the primary reserve currency.”Moreover, Europe’s trade
problems with China, and trade deficits, will grow in the years ahead,
casting some doubt on the euro’s long-term strength relative to the
dollar,” Morici said. “Picking the euro over the dollar or vice versa
comes down to picking which currency will be stronger two and five
years from now. That is a difficult choice to make.”

[Author]

January 2, 2007 at 11:47 AM