Euro Off The Blocks In Race With U.S. Dollar
07:33 p.m Jan 03, 1999 Eastern
By Ruth Pitchford
SYDNEY (Reuters) - The euro made its debut on the foreign exchange market here Monday, heralding a new era of economic integration in Europe and a potential challenge to the global hegemony of the U.S. dollar.
For nearly 300 million Europeans in Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain, their new shared currency was born last Friday.
But the first big test for the euro -- probably the most ambitious economic project ever attempted -- was the start of official Asian trading at 5:00 a.m. (1800 GMT) in Sydney.
''We came in really early. We are extremely tired but very happy. It is an historic moment,'' said Takahiro Ogura, head of the euro/dollar section at Tokyo Forex Ltd in Tokyo.
The new single currency survived much as its chief minder, the new European Central Bank, might have hoped, encountering modest but adequate liquidity and no nasty surprises after an unprecedented global overhaul of financial trading systems.
But analysts are looking way beyond the first trading session for the euro's real impact on the world economy.
Over the next year or so they expect the euro to surpass Europe's former benchmark currency, the German mark, as a reserve and investment currency, eroding the grip the U.S. dollar has exerted for 50 years as the world's currency of choice.
''We're prepared for some big inflows of money (into euros), especially from the Asia Pacific region, but over the course of the next quarter of a year, not the next quarter of one trading session,'' said Nick Parsons, chief currency strategist at Paribas in London.
''There are significant real money flows that are going to be coming into the euro, from Asian central bank sources, from Asian institutional investors, not just in Japan but throughout the continent,'' Parsons told Reuters Television Monday.
The rest of the world will need the euro to trade with companies in the euro bloc and to invest in increasingly liquid and homogenous European equity and debt markets as the new currency smooths valuations and transactions, analysts say.
Central banks, which now hold on average half their foreign currency reserves in U.S. dollars, will start to shift into euros -- if only in recognition of the 11 euro countries as a bigger trading bloc than the United States.
All this assumes the new currency avoids the potential for chaos and disaster that many in the foreign exchange market once predicted as Europe's politicians wrestled with national pride and economic divergence to forge its monetary union.
One risk is that the euro could prove painfully strong for exporters in some of the 11 euro countries.
Bundesbank council member Ernst Welteke said Thursday he expected the euro to be a very strong currency and that its strength would have to be carefully monitored.
Christian Noyer, vice president of the European Central Bank, was at pains to play down this risk Saturday, but the bank has said it is prepared to counter any rapid portfolio shift into the euro.
Indeed, several dealers in Sydney suspected the hand of the central bank in the market this morning as a large sell order at 1.1750 U.S. dollars was restraining an otherwise keen Asian appetite for the new currency.
The euro made a strong market debut, opening in Sydney at 1.1747 U.S. dollars, well above the 1.1685/90 U.S. dollars where its precursor, the European Currency Unit or Ecu, ended its life Thursday.
The Ecu, ditched in favor of a fresh start with the euro after the prototype hit market turbulence in the early 1990s, was made convertible one for one with the euro.
The next immediate hurdle for the euro is likely to come when London, which has the lion's share of the US$1.5 trillion-a-day global currency market, starts dealing.
The European Central Bank, which maintained regular contact with EU and non-EU central banks throughout the weekend, earlier said it had encountered no problems which might impair a smooth start for the currency.
And bourses across Europe also declared themselves ready.
Whether interaction between banks goes smoothly once trading starts in Europe in earnest remains an open question.
The Bank of England said there were bound to be the ''odd teething problems,'' but voiced optimism that firms would cope.
In Sydney, National Australia Bank, the country's biggest bank measured by market capitalization, said it made the first official trades at 1.1747 U.S. dollars, 1.6110 Swiss francs, 0.7080 sterling and 1.9190 Australian dollars.
NAB handled the first US dollar trade on behalf of John Fairfax Holdings, an Australian publishing group.
Bankers in Tokyo said the euro had officially opened at a rate of 133.15 yen there.
Copyright 1999 Reuters Limited.
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