The Shadow War: Euro vs the Dollar - Essay Example

Euro emerged as a currency of the Europe in early part of the 21st century thus ushering a new era of consolidation into the region. Over the period of time Euro has made a slow but steady start in the international market. The growing competitiveness of the European markets especially against US markets provides Euro a great opportunity to shine against US dollar. The economic power and EU’s relationship with the Asian economies especially has allowed it to wield substantial economic power as one of the largest buyers of Asian economies. EU’s dependence on the textile import from Asia especially from China, Pakistan , India and Bangladesh coupled with China’s traditional superiority in producing cost effective products gave EU a opportunity to increase its trade volume with the region and with it the currency of the trade also. The recent economic happenings in the world economy are clearly suggesting a weakening American economy which is lingering from its subprime crisis and now seems to be engulfing into the energy crisis as the oil prices have started to raise also. The overall situation suggests a different story, a new feature, and new rules of the economic superiority in the world. Though the US is the largest single economy in the world however, its neighboring countries are not that powerful in terms of their economic standing therefore any kind of regional pacts such as EU may not provide a more and better economic power to US to further influence the world economy. This essay will look into the so called Euro Vs Dollar war ad will analyze and comment on the future of two currencies and which might take precedence from other. Will Euro replace Dollar? In the spring of 2008, dollar traded nearly at $1.6 per Euro suggesting the slide of Dollar against the Euro in the recent past. The rising dollar against the Euro as well as a mild to medium recession into the US economy is suggesting a hint of decrease in the overall competitiveness of the US economy. The consistent slide of dollar in the international market against another major currency suggest that the future may develop itself into a new face where the currency of competition within the international markets may no longer remain as dollar but may very well see Euro as the major currency for trade in international market. The British Prime Minister has recently said that all the Europe will combine together to bail out the current crisis into the international markets and many observers view this statement within the context of the dominance of the EU over the world markets if it succeed in bringing the required stability into the world economic markets. (Rhodes, 2008). The question whether the Euro will lead the future markets as the major currency of transaction is in debates as to whether the US currency will survive this new force or not. However, this argument may not be taken as a whole unless analyzed into a broader context. Europe is an economy which is largely dependent on the immigrants. UK being the top country where immigrants and Diaspora especially from Asian countries is in large number. This is effectively fuelling the growth of the UK economy as it is providing it cheap and skilled labor however one also must notice that the average population in the region is ageing thus what EU face now is the ageing work force and lack of indigenous work force to which it can rely. The inflow of immigrants may be a healthy sign but lack of the indigenous work force within the region will clearly define the future dominance over world markets. This factor may reduce the overall competitiveness of the region however the same can also be compensated by the fact that increased Diaspora would result into increase demand from the region and if Euro being the dominating currency, the future trends may very well tilt toward Euro as the dominant currency of the future. When we talk about the future dominance of the world markets by the Euro, there are lots of other arguments also in response to the dominance of either currency in the international markets. Australian Economist and Columnist Geoffrey Heard argue that the recent war on terrorism especially in Iraq is not a clash of civilization between the Muslim world and the West but an indirect attempt to wage a war against Europe for economic dominance of the world. (RAJARAM, 2003). This argument may seem a power argument especially in the wake of the fact that US has not shown its appetite for the Iraqi Oil Openly despite in complete control of it. By disbalancing the world peace, US is basically trying to achieve a military dominance first through shock and eve as described by US President George W Bush and than when effectively essential input markets are possessed, US may wage a cold war on economic fronts with EU in order to maintain its traditional dominance over the world markets. This whole hypothesis if proven correct would definitely provide dollar a prominent place in world markets in future however if proven incorrect, Euro may the future currency of the international transactions. Many also believe that there is a strong sense of Regional identity emerging within EU as the more and more manufacturers from the region are quoting their prices in the Euros. This is also true for the buying side of the transaction also therefore this shift towards quoting Euro deliberately despite the fact that dollar is the currency of the transaction in the international market clearly provide a valid evidence to the argument that US and Europe are soon to engage themselves into a cold war over the economic dominance of the world. The recent slide into the economy of the US also suggests that the US may be weakening itself. The most striking fact regarding the economic slow down into the economy is that it is internally generated and not externally influenced like the oil price surge during 1970s. Starting with the subprime crisis, US economy has been in continuous recession. This has significantly increased the cost for those who trade with US thus dollar is now a costly alternative for them. This therefore raise their overall cost and coupled with more current volatility of the dollar into international markets, the dollar may not remain the preferred currency for most of the international buyers and sellers. Further arguments go farther into the many conspiracy theories also however future may be uncertain. The historical resilience of US economy suggests that it has the capability to bounce back from the economic shocks. Once the economic slow down slows and the economy starts to pick up the dollar may re-emerge and re-consolidate its position into the international market however the current evidence very well suggest that the Euro may start to dominate the world markets as the currency of future. The whole argument suggests that Euro may well be the future currency of the world transactions. Conclusion The shifting patterns into the world markets as well as the mounting pressures on the US economy are greatly increasing the role of Euro in the international market. This is because of the fact that Europe is constantly becoming a dominating force in the international markets because of its competitiveness, great acceptability as well as the increasing sense of regional identity. Bibliography RAJARAM, N. (2003). The shadow war: euro vs. dollar. Retrieved July 14, 2008, from The Hindu: http://www.hinduonnet.com/op/2003/04/22/stories/2003042200070200.htm Rhodes, W. (2008). Euro Vs Dollar. Retrieved July 14, 2008, from http://willrhodes1961.wordpress.com: http://willrhodes1961.wordpress.com/2008/03/17/euro-vs-dollar/ Read More