*NEWS* EURO RIVALS OTHE CURRENCIES

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*NEWS* EURO RIVALS OTHE CURRENCIES

 user 2007-01-02 at 11:47:00 am Views: 71
  • #17131

    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.”