The dollar

Date: 2015-10-07; view: 405.

The euro

Feb 18th 2009
From Economist.com

The euro launched as an electronic currency in January 1999; cash appeared three years later. Fifteen of the European Union's 27 member states have so far adopted the currency and more would like to do so. The euro is considered an attractive shelter during times of economic turmoil. But some countries have rejected it and Britain has never looked likely to join. The euro's adoption is meant to complete the European single market, facilitating cross-border mergers and price transparency while eliminating exchange-rate risk. But it invites “free-rider” problems, by spreading risk among the countries that use it, while doing little to synchronise the euro zone's economies.

Having fallen dramatically after its launch, the euro began recovering against the dollar in mid-2001, overtaking it in December 2004 and continuing to rise over the next few years (to the chagrin of European exporters) until slipping in August 2008. Whenever the EU stumbles politically, critics of the euro tend to raise doubts about its utility—most of them misplaced. By the tenth anniversary of its launch however, the spectre of a member's default—or some lesser drama—began to seem real.

Text B

Oct 8th 2008
From Economist.com

The American dollar's value has global repercussions. Sovereign debt is usually denominated in dollars, and a strong dollar can feed other countries' inflation by making dollar-priced imports expensive (a weak buck has the opposite effect). The dollar is also the world's main reserve currency, although that status may be in jeopardy due to America's profligacy.

During the 1990s, demand for American assets helped keep the dollar strong. It remained so during America's recession—Japan's sickness kept the yen down, and the euro remained curiously weak. The dollar was probably overvalued then (as The Economist's Big Mac Index would have told you), and in early 2002 began to fall gradually, and then more steeply, helped along by America's yawning current-account and budget deficits. Despite a rebound in 2005, the dollar resumed its decline, as gloomy economic news piled up. Some have puzzled over its resilience, in the face of massive financial crisis.