But phenomenally, the arguments that dollar opposers hold stems from one logic – head to head, the euro wins hands down! For one, the global debt markets today are now swamped with more and more of euro denominated bonds. By the 2nd quarter of 2005, while there was a yoy decline of 0.7% in the amount of dollar denominated bonds, the amount of euro denominated bonds increased by an impressive 1.1%. The case is the same even in forex rates! April 27, 2007, was one of the overwhelmingly historic days since the birth of euro, when it skyrocketed to an all-time high value of $1.3688. And as if that weren’t enough, today, more and more countries are diversifying their reserve holdings into euros. As per IMF’s COFER (Currency Composition of Official Foreign Exchange Reserves) data, the share of euro in the foreign exchange reserves of all countries, over the past few years, is increasing to historical highs. Data reveals that while the share of euro has increased from 14% during the 1st quarter of 1999 to 17.08% during the 4th quarter 2006, the share of dollar has significantly dropped from 54% to 42.88% during the same period. Evidently, despite the ‘dollar dolls’ continuing to root for a cause that doesn’t seem completely lost still, there is a huge looming danger that the ‘euro heroes’ might just end up swamping away the yankee currency in many more ways than one. If all that doesn’t seem like someone’s ear being bitten off , Sir, what gives?!?
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Source : IIPM Editorial, 2007
An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative