The Euro-Dollar Relation and its Impact on Other Currencies

1. Introduction

Currently the world economy is in a process of correction of several imbalances that were accumulated in previous years and will probably force down on economic activity over a period of time. A quite important imbalance is that of the relationship between the euro and the US dollar. Money, currency or monetary assets is, at present, a mobile "target" to mankind. The evolution of all modern economies, as well as the direction of the movement of humanity does not seem to place it absolutely in contradiction with the "legendary" Karl Marx and his affirmation that "money appears to be omnipotent” - a reason why they are still nowadays confusing wealth with money.

One form or another, money performs multiple functions. But, by definition the discrepancy between the amount of money in circulation at a certain moment in time owned by various businesses and the quantity of goods and services offered on the market reflects in different ways from country to country, the purchasing power of a coin or another. The problem arises in terms of their value, stability, be it Euro, be it the U.S. dollar.

Either the U.S. dollar or the euro, the currency must be stable, especially since these two seem to throne of worldwide financial and monetary markets. A stable and strong currency confirms and at the same time strongly supports a developed, efficient and functional economy. Economic growth is the default. A strong currency provides a greater safety to the citizens, a trust in the currency which is most likely to boost new investments, as it is evidenced over time by the U.S. dollar. And, perhaps, it is as they say "Every nation has the currency that it deserves" , because as long as the inhabitants of a certain economic space do not understand that it takes time, patience, effort, sacrifice and even loss of experience to build a competitive economy, and ultimately to obtain profit - money - and thus a high purchasing power, so long they will have an unstable currency.

In this context of ideas, identifying the influences that the currency, particularly the euro and the US dollar have on the global economic development is of great importance in the context of creating financial imbalance.

Further, we will therefore present both the oscillations of the relationship Euro - U.S. dollar worldwide and their impact on global economy and the changing of the US dollar's positioning on international currency market with the introduction of the single European currency.

2. The US Dollar and its supremacy on the world market

2.1. The fall of the Pound

After the World War II, the dollar has become the clear leader among international currencies. In 1899 the share pounds currency held by official institutions was more than double the weights of the French franc and German mark to one place more than one dollar. Even in 1940, the volume of liquid assets owned pound was double that in dollar. However in 1945 the pound and the dollar positions had already been reversed. War itself (including the U.S. loans, loans committed by Britain and other consequences) has completed its upward trend of the dollar.

Reversal reflected long-term trends, with the economic fundamentals that have occurred since the late nineteenth century. The U.S. economy topped the UK economy in real terms since 1872 and in 1915 U.S. exports were recorded over the UK. One reason for the backwardness of the U.S. financial system development may be that the first central bank was founded only in 1913. After 1914, the U.S. passed the stature of the net debtor to net creditor while the UK currency is in the opposite direction. This was due largely to U.S. loans to Great Britain to ensure it can cover costs WWI. Also, the dollar was last currency convertible into gold at a fixed price in the 20s, its role in international trade and finance has increased significantly. The fact that pound retained its position as the key currency during the inter-belic period was due primarily to inertia. But in 1945 the deposition of the pound was undeniable.

Pound decline was just part of a larger puzzle through which UK economic superiority lost colonies and military power. Also, an important role in pound decay was the prime minister and the U.S. decision not to support the beleaguered British currency at IMF.