What do you guys think about the wikipedia article on Euros?
en.wikipedia.org
A new reserve currency
The euro is widely perceived to be a major global reserve currency, sharing that status with the U.S. dollar (USD), albeit to a lesser degree. The U.S. dollar continues to enjoy its status as the primary reserve of most commercial and central banks worldwide.
Since its introduction, the euro has been the second most widely-held international reserve currency after the U.S. dollar. The euro inherited this status from the German mark, and since its introduction, has increased its standing somewhat, mostly at the expense of the dollar. The possibility for the euro to become the first international reserve currency in the near future is now widely debated among economists.[32] Former Federal Reserve Chairman Alan Greenspan gave his opinion in September 2007 by stating that the euro could indeed replace the U.S. dollar as the world's primary reserve currency. He said that it is "absolutely conceivable that the euro will replace the dollar as reserve currency, or will be traded as an equally important reserve currency.[33] Additionally, there has been some suggestion that the recent weakness of the US dollar might encourage various parties to increase their reserves in euro at the expense of the dollar.[34] In the second term of 2007, euro as a reserve currency has reached a record level of 25.6% (a +0.8% increase from the year before)- at the expense of US dollar which dropped to 64.8% (a drop of 1.3% from the year before).[35]
Currency composition of official foreign exchange reserves
? '95 ? '96 ? '97 ? '98 ? '99 ? '00 ? '01 ? '02 ? '03 ? '04 ? '05 ? '06 ?
US dollar 59.0% 62.1% 65.2% 69.3% 70.9% 70.5% 70.7% 66.5% 65.8% 65.9% 66.4% 65.7%
Euro 17.9% 18.8% 19.8% 24.2% 25.3% 24.9% 24.3% 25.2%
German Mark 15.8% 14.7% 14.5% 13.8%
Pound sterling 2.1% 2.7% 2.6% 2.7% 2.9% 2.8% 2.7% 2.9% 2.6% 3.3% 3.6% 4.2%
Japanese yen 6.8% 6.7% 5.8% 6.2% 6.4% 6.3% 5.2% 4.5% 4.1% 3.9% 3.7% 3.2%
French franc 2.4% 1.8% 1.4% 1.6%
Swiss franc 0.3% 0.2% 0.4% 0.3% 0.2% 0.3% 0.3% 0.4% 0.2% 0.2% 0.1% 0.2%
Other 13.6% 11.7% 10.2% 6.1% 1.6% 1.4% 1.2% 1.4% 1.9% 1.8% 1.9% 1.5%
Sources: 1995-1999, 2006, IMF: Currency Composition of Official Foreign Exchange ReservesPDF (84 KB)
Sources: 1999-2005, ECB: The Accumulation of Foreign ReservesPDF (816 KB)
A currency is attractive for international transactions when it demonstrates a proven track record of stability, a well-developed financial market to trade the currency, and proven acceptability to others. While the euro has made substantial progress toward achieving these features, there are a few challenges that undermine the ascension of the euro as a major reserve currency. Persistent excessive budget deficits of some member nations, economically weak new members, conservatism of financial markets, and inertia or path dependency are all important factors keeping the euro as a junior international currency to the U.S. dollar. However, at the same time, the USD has increasingly suffered from a double deficit and consequently has its own concerns.
As the euro becomes a new reserve currency, Eurozone governments will enjoy substantial benefits. Since money is effectively an interest-free loan to the issuing government by the holder of the currency—foreign reserves act as a subsidy to the country minting the currency (see Seigniorage). However, reserve status also holds risks, as the currency may become overvalued, hurting European exporters, and potentially exposing the European economy to influence by external factors who hold large quantities of euro. |
