Will the euro become an equivalent competitor to the American dollar?

Abstract

The main purpose of this article is to show by selected case studies to what
extent the euro has already managed to establish itself as one of the key
international currencies from the point of view of various aspects, to what
extent it fulfills the functions of an important international currency, and
what are the prospects of the euro’s position in the future. Various signals
indicate that the euro already fulfills some conditions which would allow it
to become a serious competitor to the dollar in a relatively short period of
time. The article is also taking notice of some obstacles and drawbacks that
the European Economic and Monetary Union (EMU) has to and will have to
deal with.First of all, the author deals with the question of whether the
eurozone is an optimum currency area. This is one of the principal
theoretical problems which has been accompanying the EMU since the very
beginning. Then he shifts his attention to the question,concerning what
role does the euro play in the world economy at present from the point of
view of the share of the eurozone on the world GDP, trade, o!cial foreign
exchange reserves, selected indicators of financial markets etc. Then he
deals with the role of the euro in the world monetary system – one of the
main subsystems of the world economy. Here is presented a survey of
countries which have accepted the euro as its single or main currency, and
also countries whose currencies are narrowly linked to the euro by means
of various exchange rate mechanisms. The next part of the article outlines
the potential of the euro in its “conquest” of further regions of the world.
Both those where the euro is becoming or will become the number one
currency (e.g. in the countries of Central and Eastern Europe) in a
foreseeable future, and those where it will compete with the American
dollar (e.g. in Latin America, in the Middle East etc.). In the final part, the
author attempts (use the same tense) to point out some problems which
can influence what missing subject, if and to what extent the euro really will
become a strong and stable currency. At the moment, it is not yet possible
to answer concisely and clearly the question of whether the euro will
become an equivalent competitor to the American dollar. It is important
whether the EMU will or will not break up in the course of the coming years
or decades. So far, there have not appeared any signals of this kind. It will
be substantial how the member countries of the eurozone will be able to
handle the first serious crisis, e.g. analogical to that of 1992–1993. At that
time, the exchange rate mechanism (ERM) was abandoned temporarily by
the Italian lira and permanently by the British pound. This crisis of the
European monetary system has shown the difficulty or even incapacity to
set such a monetary policy which would be simultaneously advantageous
for all member countries of a certain monetary system. The question is
whether it is possible considering there are usually big differences in
economical standing between individual countries. A similar or even a more
serious crisis could emerge in a longer time horizon. The EMU thus stays a
long term project and a long distance run. It is, however, possible to assume
that within the next ten years, it could become totally clear whether the
EMU project is a great success or a great error.