Lme 2009 03 Prospects Of Euro Replacing The Dollar
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Project Group Presentation: Economic and Political Environment for International Business

Project Group Presentation: Economic and Political Environment for International Business

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Lme 2009 03 Prospects Of Euro Replacing The Dollar Presentation Transcript

  • 1. THE PROSPECTS FOR THE EURO REPLACING THE DOLLAR L o n d o n M e t r o p o l i t a n U n i v e r s i t y Course: Economic and Political Environment for International Business Lecturer: Paul Bullock Referee: Marina Lindl
  • 2. O U T L I N E History and background information on the Euro Definition and key criteria for international currency status What are the prospects for the Euro replacing the Dollar? Summary of presentation I. BACKGROUND II. DEFINITION III. DISCUSSION IV. CONCLUSION
  • 3. I. BACKGROUND II. DEFINITION III. DISCUSSION IV. CONCLUSION
    • H I S T O R Y
    • Foundation of European Monetary Union (EMU) in three steps
    • Introduction 01.01.1999
    • Physical introduction 01.01.2002
    • R E A S O N S F O R T H E E U R O
    • Single currency = single market = more efficiency
    • More stable currency
    • Symbol of identity
    • A more powerful voice in the world which makes international trade easier
    • F A C T S
    • 16 member countries; 329m citizens
    • European Central Bank (ECB) responsible for monetary policy
    • Inflation targeting as main objective of ECB
  • 4. I. BACKGROUND II. DEFINITION III. DISCUSSION IV. CONCLUSION Source: European Union Website Euro area Member States Non-Euro area Member States Member States with an opt-out
  • 5.
    • 1.) Output and Trade
    • 2.) Country's financial markets
    • 3.) Confidence in the value of the currency
    I. BACKGROUND II. DEFINITION III. DISCUSSION IV. CONCLUSION KEY ASPECTS TO GAIN INTERNATIONAL CURRENCY STATUS
  • 6.
    • 1.) Output and Trade:
      • large share in international output, trade and finance
      • big natural advantage
    I. BACKGROUND II. DEFINITION III. DISCUSSION IV. CONCLUSION KEY ASPECTS TO GAIN INTERNATIONAL CURRENCY STATUS
  • 7.
    • 2.) Country’s financial markets:
      • capital and money markets must be
      • open and free of controls
      • deep and well-developed
    I. BACKGROUND II. DEFINITION III. DISCUSSION IV. CONCLUSION KEY ASPECTS TO GAIN INTERNATIONAL CURRENCY STATUS
  • 8.
    • 3.) Confidence in the value of currency:
      • currency should not fluctuate wildly
    I. BACKGROUND II. DEFINITION III. DISCUSSION IV. CONCLUSION KEY ASPECTS TO GAIN INTERNATIONAL CURRENCY STATUS
  • 9. I. BACKGROUND II. DEFINITION III. DISCUSSION IV. CONCLUSION OUTPUT AND TRADE
    • The Eurozone output has surpassed that of the US in 2007
    • Strong exchange rate of Euro helped
    Source: Reuters, “Eurozone GDP exceeds that of US”, (2007); Credit Agricole, “Eco News”, No. 88 – February 19, 2008, (2008) US Real GDP Eurozone Real GDP growth REAL GDP GROWTH
  • 10. I. BACKGROUND II. DEFINITION III. DISCUSSION IV. CONCLUSION OUTPUT AND TRADE
    • The Eurozone includes a number of very successful exporting economies including Germany, France and the Netherlands amongst others.
    • The US, on the other hand is known to have a high current account deficit (i.e. imports exceed exports by a large margin)
    Source: EUROSTAT - External trade, by declaring country, total product (2008)
  • 11. I. BACKGROUND II. DEFINITION III. DISCUSSION IV. CONCLUSION COUNTRY’S FINANCIAL MARKETS
    • The US has two major stock markets followed by London and Tokyo; only in 5 th and 6 th place, does the Eurozone occupy
      • 1. NYSE: USD 21.79bn New York
      • 2. Nasdaq Stock Market USD 11.81bn New York
      • 3. London Stock Exchange USD 7.57bn London
      • 4. Tokyo Stock Exchange USD 5.82bn Tokyo
      • 5. Euronext USD 3.85bn Bruxelles, Paris, Amsterdam
      • 6. Deutsche Boerse USD 2.74bn Frankfurt
    Source: Reuters, “World's largest stock exchanges”, (2007)
  • 12. I. BACKGROUND II. DEFINITION III. DISCUSSION IV. CONCLUSION CONFIDENCE IN THE VALUE OF CURRENCY
    • After initially falling below parity with the US Dollar, the Euro has shown a strong appreciation against the US Dollar.
    Source: Credit Agricole, “Eco News”, No. 88 – February 19, 2008, (2008)
  • 13. I. BACKGROUND II. DEFINITION III. DISCUSSION IV. CONCLUSION NETWORK EXTERNALITIES
    • There is an increased use of the Euro as reserve currency, invoice trading and debt issuing
    Source: Seeking Alpha, “The First (and Possibly Last) Euro Decade”, (2009)
  • 14. I. BACKGROUND II. DEFINITION III. DISCUSSION IV. CONCLUSION POLITICAL ASPECTS
    • World Bank, IMF and World Trade Organisation to name but a few international organisations are based in the US.
    • These organisations do have a strong influence on the international financial arena.
    • The geopolitical, military and cultural dominance of the US help to sustain the US Dollar’s role as an international currency
    Source: Seeking Alpha, “The First (and Possibly Last) Euro Decade”, (2009)
  • 15. CONCLUSION
    • The Euro has gained in significance over the past few years due to:
    • the size of the Eurozone economy
    • network externalities from growing usage
    • growing confidence in the Euro’s stability
    • continuing appeal of new members to join
    • HOWEVER, the US Dollar may remain THE international currency for some time due to:
    • geopolitical reasons
    • relationships between governments
    EURO DOLLAR
  • 16. References:
    • Chinn, Menzie and Jeffery Frankel, 2008, “The Euro May over the Next 15 Years Surpass the Dollar as Leading Interntional Currency” KSG Faculty Research Working Papers Series, RWP08-016
    • Cohen, Benjamin J. 2008. Forecasting the euro’s future.
    • http://www.resourceinvestor.com/pebble.asp?relid=46197 (20.02.09)
    • European Commission http://ec.europa.eu/index_en.htm
    • Hosli, Madleine O. 2005. The euro. A concise introduction to European money integration. Lynne Rienner Publishers, London
    • http://www.economist.com/