Introducing the Euro! A Currency That Will Mean More In The Future
As we watch with increasing interest the situation with the U.S. Dollar and its valuation, more and more people are beginning to see the need to understand other currencies including the Euro. This article provides that introduction.
If ever there was a mysterious financial concept that needed to be brought down to earth it is currencies! These pieces of paper issued by central banks trade against each other and are the basis of trade around the world. Following World War II, the United States dollar was far and away the most trusted currency in the world. In fact, following the war, the statement that the "greenback" so named for its color was "as good as gold" was true as the currency was backed by gold. Richard Nixon took care of that when he ended the pegging of the value of our currency to gold, and instead let it "float" against the value of other global currencies. As the United States was the sole economic super-power at the time, the value and leadership of the U.S. Dollar was unquestioned.
Throughout the 1980's and into the 1990's culminating with the re-unification of Germany following the collapse of the Soviet Union, the European nations began to seek ways to strengthen their markets and their economies. As part of this, in 1992, the nations agreed to forego their own currencies and create a new, supra-national currency which became known as the Euro. The idea behind it was relatively simple, just as the U.S. Represented a huge market of over 250,000,000 people unified under one currency to facilitate ease of trade, so too would Europe unify 300,000,000 plus Europeans under one currency to facilitate ease of trade.
So, of the 27 members of the European Union, 17 decided to forego their own currency and move exclusively to the Euro. The most economically powerful of these was Germany. The most notable stand-out was Great Britain who held on to the British currency as many British citizens saw this as a first step toward losing their national identity.
The Euro originally was released at a conversion of $1.00 dollar to $1.00 Euro or a conversion of 1:1. Following its release, it appreciated as investors worldwide saw this as a positive development for the European marketplace and thus began to move money into the Euro and away from the dollar. As you undoubtedly know, in 2008, the United States encountered a major economic crisis which caused nations, really for the first time, to question the value of the U.S. Currency. As a result, money began flowing into the Euro which at its peak traded at a ratio of 1.59:1, or $1.59 U.S. To buy one Euro.
Recently though, Europe has experienced significant economic issues due to over spending governments which is causing the Euro to undergo valuation adjustments. Presently, the Euro trades at around $1.33:1 due to the problems that happened last year in Greece, and are possible in Spain and other EU nations.
At the core here is the cost of trading. A highly valued currency means that the holder of that can buy more goods from nations with lesser currency values. So, as the EU appreciates against the dollar, imported goods become more expensive. Now on the other side, exported goods become cheaper, and this balance is why central banks, like our Federal Reserve, strive to keep a relatively stable value to their currency. Too cheap and yes, exports go up, but let's remember that the U.S. Imports most of its manufactured goods so we see inflation. Too high, and yes we can buy more imported goods, but our exports become more expensive and markets therefore aren't as willing to buy American goods.
So, yes an understanding of the Euro and its impact on global economics is important to you, and matters to you.
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Steve Beaman is the Author of "Happiness & Prosperity in the 21st Century: The Five Paths To a Transformed Life". He has authored over 100 articles relating to the Five Paths including articles on Financial Prosperity, Emotional Wellness, Physical Health, Intellectual fulfillment, and Spiritual Security. He enjoyed a highly successful career in Economics and Finance prior to establishing The Steve Beaman Group. The "SBG" is an organization dedicated to helping people on their journey of life.
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