–The Euro...The New World Currency?
 

More over US $, here comes the euro
Asia1.com

It could become the currency of international trade.

THE weakening US dollar has finally given the euro a chance to shine.

Analysts say the euro, launched six years ago, is emerging as a credible alternative to the ailing greenback, which is spiralling lower under the weight of US economic imbalances and talk of central bank selling.

'Central banks are starting to re-allocate, at least very gradually, their funds into the euro, and the euro is gradually becoming a more credible currency,' said Bank of America economist Lorenzo Codogno.
 

'You shouldn't expect the central banks to move out of the dollar overnight. It's usually a process that takes years. But on margin, the re-allocation of portfolio flows could be significant for the dollar,' he said.

STABILISING EFFECT

Over time the euro will also become increasingly a currency for international trade, Mr Codogno predicted.

Bank of Japan governor Toshihiko Fukui said recently that it would have a stabilising effect on the global financial system if a clear rival emerged to the dollar as an international currency.

Speaking at a seminar in Tokyo on the theme The Euro: Five Years On - Implication for Asia, he cited data showing the euro is emerging as a serious rival to the dollar as a currency for conducting global trade and investment.

Mr Fukui said the proportion of foreign exchange reserves held in euros has risen to 20 per cent, and nearly a third of the cross-border-issued bonds are now denominated in euros.

But Mr Fukui warned against allowing any single currency to dominate global commerce.

He said: 'In today's globalised economy, this could lead to undesirable ripple effects on the rest of the world, through the fluctuations of the external value of the key currency.'

Meanwhile, European Central Bank (ECB) President Jean-Claude Trichet has said the rise of the euro in terms of the US dollar is 'unwelcome'. Mr Trichet is worried that a strong euro would make European exports more expensive.

He has tried several times to talk the euro down, but the ECB has so far been wary of intervening more aggressively on its own.

Last week, the US dollar slid to a series of record lows against the euro on signs that central banks in Russia and China are considering re-allocating more of their foreign currency reserves out of US dollars. - AFP.