The Euro Versus the Dollar

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History of the Euro “The introduction of the euro will represent the most dramatic change in the international monetary system since President Nixon took the dollar off gold in 1971 [and when] the era of flexible exchange rates began…the euro is likely to challenge the position of the dollar [and hence] this may be the most important event in the history of the international monetary system since the dollar took over from the pound the role of dominant currency in World War I” (Mussa 2002). The Euro evolved over a period of forty years. The European Economic Committee was established in 1958 with the intent to allow for free movement of labor and capital, abolition of trusts and cartels, development of joint and reciprocal policies on labor, and social welfare. The development of a common price level for agricultural products was accomplished along with the elimination of internal tariffs among member countries. The European Free Trade Association was a customs union and trading block formed in 1960. The goals of the EFTA were to establish free trade among members while seeking a broader economic union. In 1993 the European Union was formed. The European Union is responsible for cooperation on justice, and affairs dealing with home and abroad. In 1967 there were three main treaty organizations: the European Coal and Steel Community, the European Economic Community and the European Atomic Energy Community, which formed one comprehensive governing body. This was then divided into four main branches: The European Commission, the Council of the European Union, the European Parliament and the Court of Auditors. The evolution of the Euro came into being under the Marshall Plan. The ideology of a united Europe was basis fo... ... middle of paper ... ...y equals the United States. Hence, in this new world of international monetary structure U.S. needs to be very careful about its economic policies or it may lose its dominance over the monetary markets internationally. However, in examining the U.S. economy in the recent past we realize that the trouble has already begun for e.g. The current account deficit jumped by about $100 billion annually during the three-year period 1998-2000, nearing $450 billion or about 4.5 percent of GDP in 2000. The net international investment position of the United States reached a negative $2 trillion at the end of 2000. Hence it is quite possible that in near future the dollar may experience some sharp depreciation, the evidence of which is reflected in the excel sheet attached. Hence, in conclusion we can safely say that Euro does indeed pose a significant threat to the U.S. dollar.

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