The Euro’s Day Will Not Come

Adam Posen, on why recent strength in the euro does not herald its rise to greater international status:

So a strengthening of the euro against the dollar, even for several months in a row, is not indicative of a decline in the dollar’s global role and usage, or for that matter much of anything else. People started talking about a move away from the dollar in the 1970s when US long-term economic prospects were far more uncertain relative to Europe and Japan than they are now compared even to China—and nothing happened in terms of a decline in the dollar’s global role…

No one should read too much into exchange rate swings, including the recent decline of the dollar against the euro. It takes much more than such a depreciation to cause a shift in reserve currency status. The euro may someday play a global role beyond its current use, but until the eurozone’s financial markets integrate, its sustainable growth rate rises, and its willingness to import increases, that day will not come.

posted on 19 December 2007 by skirchner in Economics, Financial Markets

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