Small remark

It seems so natural but it's still amazing to have coins from France, Spain, Austria, Ireland, Portugal, Belgium and Italy in my pocket today.

EU Commission conclusions on the changeover to the Euro in Slovakia

The European Commission has issued a Communication to the European Parliament, the Council, the European Economic and Social Committee, the Committee of the Regions and the European Central Bank giving an overview over the changeover process to the Euro in Slovakia in January of this year.

The communication paints the picture of a rather successful process, without major problems.

I'd just like to quote some parts of the document I find relevant and noteworthy (bold headlines are my formulations):

Conclusions for future changeovers

"In order to speed up the changeover and thus reduce the burden put on retailers who have to handle two currencies simultaneously, the change should be given exclusively in euro as of 1 January. It could be considered for future changeovers to introduce a legal prohibition on the use of the legacy currency for giving change (with an exception for cases where it is materially impossible to use the euro)."

As regards inflation

"Provisional calculations estimate the total (one-off) impact of the changeover on headline inflation during and immediately after the changeover to be within the range of up to 0.3 percentage points"

"January data from the Commission's Consumer Survey show that inflation perceptions have not been affected by the changeover. Perceived inflation remained on its downward trend and reached 21.7 pp in January, down from 25.6 pp in December. In February, perceived inflation went down further, to 18.7 pp. In the context of declining HICP inflation, it is indeed more difficult to disentangle the impact of the euro changeover on inflation perceptions."

The implication of the Commission in the information campaign and the results

"The communication campaign on the introduction of the euro started in 2007 with the launch of a national euro website and free telephone help line and the organisation of seminars and conferences. A fully fletched communication campaign started in spring 2008. [...]

It was supported by a massive distribution of publications and euro calculators to all households, a constantly updated (and massively visited) website, specialised projects for schools and journalists, a train-the-trainers programme and a 'Euromobile' bringing up to date information to remote areas. [...]

The Commission supported the campaign in technical and financial terms. This included the provision of publications and promotional material, the organisation of exhibitions, seminars for journalists and opinion polls. Via several grants, the Commission financed a part of the salaries of communication staff, the media campaign, the national help line and website, the project for schools, the programs for multipliers, the euro calculators and the 'Euromobile'. [...]

When asked about persisting information needs [in the January 2009 Eurobarometer; JF], some 31 % of Slovaks wished to learn more about the security features of euro banknotes and coins (4 in 10 respondents could not name any security feature at the time of the survey), 22% wanted to know more about fair rounding of prices while 19% wished to have more information on how to avoid being cheated in the currency conversions."

Will the Euro become the leading global currency?

Georgetown University associate professor Kathleen R. McNamara (photo + more) has published an article in the August 2008 issue of the scientific journal "Review of International Political Economy" (description) titled

"A rivalry in the making? The Euro and international monetary power".

In her article, McNamara concludes that the Euro will not yet become the leading international currency because it lacks "the necessary political power and social requirements".

So, how does McNamara come to this conclusion, and what are the "necessary political power and social requirements"?

Let's first see her definition of the key currency:

"I define key currency broadly, as the currency that dominates across a variety of functions: namely, the national money held most widely outside its own borders by both private actors and public authorities, used in the majority of cross border transactions around the world, and most frequently purchased in the form of various financial instruments such as bonds."

According to her figures, the global foreign exchange reserves in 2006 were 65.7% in US-Dollar (-5.2 since 1999) and 25.2% in Euros (+7.3 since 1999). Together with some more details on global currency use, McNamara comes to the following intermediary conclusion:

"In sum, the Euro is a fast developer, performing at a level far beyond its age; however, the US dollar still dominates across a range of currency indices. Should we assume that this will continue to be the case?"

The answer to that question is that the speed of change in a global social and economic system like the focus towards the Dollar is rather low. According to McNamara, the factors determining the pace of change in this specific case are:

• The European Union is only slowly becoming a real foreign policy actor, and its institutional ability or political will to become the dominant international political power is still too low (especially in comparison with the US).
  


• The international financial system is used to the Dollar while watching the development of the Euro with caution.
  


• The financial market of the European Union with its varying national legislation and control mechanisms is not as integrated as the US market.
  


• The European Union and the European Central Bank are not actively promoting the Euro to become the leading currency, while the US Treasury regards a strong Dollar as a national interest (although actual politics showed a weakening stand on this position).
  

All these points taken together lead to the conclusion that

"The Euro has many of the economic advantages that investors are likely to seek out in a key currency. A huge internal market, increasing financial integration, and generally sound fiscal profiles all point to the Euro rising to challenge the US dollar over the next decade. However, the political and social determinants of key currency status are not yet met in the EU case, giving a good deal of breathing room to the US dollar."

But, and this is the key argument of the text, many of the denominators for a possible change are socially and politically constructed. Thus:

A European Union politically willing and institutionally able could quickly become the leading financial power of world, replacing the Dollar with the Euro as global key currency.