US Dollar has always maintained its leadership position when it comes to the foreign exchange reserves held by different nations. It has also always maintained its leadership position as a safe haven currency. Between 1995 to 1999 the global Forex reserves in US Dollars increased continuously from 59.0% to 70.9% of the total reserves in all the other currencies. A substantial increase of over 20%. During those times the German Mark was the second in race in this regard but moved down from 15.8% in 1995 to 13.8% in 1999. Practically US Dollar did not have any fair competition.
Whenever there was any global turmoil, people used to turn back to USD as a safe resort, the so called safe haven. Don't we see that things are changing? The world has been in big turmoil, economic, political and natural disasters recently. The biggest recorded earthquake in Japan and the Tsunami. Conflicts in the Middle East, debt crisis in Europe and in general the shaken economies globally. And how the US Dollar has been performing? Well, its getting weaker. It's going down against other major currencies.
Before the Euro was launched and afterwards whenever some big bad news come out of that Euro zone, the points which got and get raised against Euro is have and maintain the feasibility of a single currency in such diversified zone. A zone with different languages, very strong economies and weak economies and what not. As against the negative points about the diversities, the points which have been in favor of Euro are the increased stability as against the varying interest rates of so many different currencies, credibility of a single currency in a large zone, ease and savings for consumers for buying things from across the borders or traveling, big savings and predictability for the exporters trading inside the Euro zone and even outside and ability to maintain a lower interest rate and possible control over inflation across the Euro zone countries.
Well, the fear of diversity against many benefits. If we look back, we can see that Euro has stood it's grounds. In 1999 the total global
Forex reserves in Euro were 17.9%. This almost continuously shown a growth over the years and Euro reached the share of over 26% in 2010. The share of Euro grew by almost 47% as a reserve currency while US Dollar's share dropped by over 13% during the same time. Well, the
Euro-US Dollar (
EUR/USD) race is always an interesting one.
Fear of diversity for the feasibility of Euro:
Which economy does not have diversity? From different geographical areas inside an economy which could differ in a great way in their strength of economy to individual levels i.e. rich people to people below poverty line to young and productive people and people who are not productive and need governmental support.
Eurostat and US Bureau of Labor Statistics analysis shows that the euro area growth dispersion has been broadly similar to that for the US states. Also the European Commission (Autumn 2010 Forecast) and US Bureau of Economic Analysis for dispersion of inflation across the euro area and the US, based on the unweighted standard deviation shows a quite stable dispersion of HICP (harmonized index of consumer prices) for the initial 12 countries of Euro-zone has been quite stable since 1999 and has been similar to the 14 US Metropolitan Statistical Areas. This increased a bit higher in 2009 and early 2010 but nothing which can be seen as dangerous and the in the later half of 2010 it was back to the level of the past decade. Add the 4 new member countries in the Euro zone between 2007 to 2009 and we see that the dispersion of inflation is close to the levels of initial 12 members bloke.
Do I give my vote to Euro to become a candidate to take away some more shine from the US Dollar to have the possibilities of becoming a safe haven currency? Well, I would say "yes".
