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Home U.S. World Entertainment Sports Business Health Science Technology Politics Offbeat Environment Travel News Articles Analysts: All Is Not Lost For Dollar If Obama Aligns Focus With European Officials November 28, 2009 8:23 p.m. EST Topics: World, United States, Economy Tejinder Singh - AHN Correspondent Washington, DC (AHN) - The euro, the currency used in most of the European countries last week traded just below $1.50, near 15-month highs but below its record high above $1.60 hit in July 2008. The future may not be as bleak as analysts David Wiedemer and Robert Wiedemer, and writer Cindy Spitzer, the authors of "Aftershock: Protect yourself and profit in the next global financial meltdown", predict saying that huge U.S. government debt issuance will drag the dollar into a much deeper dive, there is definitely a trend where the euro is seen as slow but steady replacing the American dollar. Both the historical and financial factors contribute to this development. The days when the greenback ruled with absolute supremacy and simultaneously commanded the unparalleled confidence of chiefs of international and domestic financial institutions along with the man in the street in the remotest parts of the planet are over. Since World War II, when the American dollar started replacing gold as a means of transaction on the international level, the dollar has taken some hard knocks in recent years. ARRIVAL OF EURO With the launch of the euro a decade ago, much was written in the pro-dollar media and EMU (European Monetary Union), as the Eurozone is called, and it was compared with the "EMU," a bird that cannot fly. On January 1, 1999 the euro was launched as the official currency in eleven countries (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain). Today, only 15 of the 27 members of the European Union (EU)* are part of the Eurozone while other new EU member countries are working toward becoming part of the Eurozone. On January 1, 2009, Slovakia started using the euro. On January 1, 2010 Lithuania joins the Eurozone and on January 1, 2011 Estonia is expected to convert to the euro. It is a binding condition of the EU bloc that all the member countries have to adopt the euro. On the other hand, Andorra, Kosovo, Montenegro, Monaco, San Marino, and the Vatican City are not EU members but do officially use the euro as their currencies. But then, compared to the launch and subsequent drop as the nascent currency took baby steps, the euro has come of age and has crossed the threshold One euro=$ 1.5 plus. The dollar has also lost against the other leading currencies, like the Japanese Yen and British Pound. HISTORICAL PERSPECTIVE With the way things are going, one must understand why and when the American dollar got to that place on the pedestal. Only then does it become clear what is happening now. A walk down memory lane shows that till World War II the exchange rates of major currencies were reflected in terms of the price of gold in the respective countries, but with the manipulation of costs of other goods then, gold was a growing discomfort among trading partners across the globe, and the dollar came as a suitable solution. World War II ended with the emergence of the United States as the dominant military and economic powerhouse, and as countries gathered to this epic-centre for military and financial support, the dollar emerged as the financial powerpoint of the financial world. With the issuing of U.S. government securities there was an added charm of earning interest over dollar deposits. ROLE OF BALANCE OF PAYMENTS FACTOR But to the discerning eye, there was a Catch-22 situation that stayed afloat all these decades - and still is. The use and abuse of the technical term "Balance of Payments" was so rampant by the U.S. that one shudders to look at the figures over the years. The United States consumed more than it produced, financing the payments with printed paper and all had been well till 1971 arrived. The U.S. devalued the "International Currency" unilaterally. Internationally-held dollar reserves overnight lost value and that was quite a hard knock for some of the poor countries of the world. Five years later, in 1976, came the Jamaican Agreement giving the financial world a floating exchange rate system where the markets started playing a lead role. But again, it was not a free float and, instead, government intervention in the form of buying and selling determines the final results at the end of the day. With the arrival of the euro in the world F/X (foreign exchange) market scene, things started changing. And let us not forget that the euro has already replaced more than a dozen European currencies, and some of them, like the German mark, French franc and Italian lira were backed by strong economic and industrial giants of the world. With the euro surging not only in value but also as a dependable currency, the world commodity markets, especially relating to oil, will start contemplating a switch to the euro to protect themselves against instability or the falling dollar. Now, a look at what is really going on behind the scene. U.S. statistic reports have repeatedly shown the American C/A (current account) deficit has expanded continuously with billions in fiscal deficit. With China shifting some of its foreign reserves into euro, there is already a warning ringing for the United States as more countries shift to euro; more falls in the dollar will result. Add to those factors the role played by the locomotive economies of Asia including China and India growing by leaps and bounds in the current years. But the financial mechanism needed to keep the dollar at a price that will sustain the U.S. C/A deficit without putting pressure on its import/export ratio, which in turn enhances or erodes the lifestyle of its citizens, will not garner support internationally over a long-term period and U.S. will have to pay the price at some point. Overall, there is room for the euro to flourish while the dollar holds ground but the U.S. fiscal experts must act in harmony with the Europeans to bring back the glory of the American dollar. The present U.S. President Barack Obama needs to use his personal connect with the Europeans to chart a viable, pragmatic approach to get the dollar out of the downward spiral it has been pushed by repeated faulty policies of his predecessors. *The 27 members of the European Union (EU) are Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. Copyright © 2003 - 2009 AHN - All rights reserved.Redistribution, republication. syndication, rewriting or broadcast is prohibited without the prior written consent of AHN.License AHN news for your website, business, digital signage network or publication. 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