Wednesday, October 8, 2008

The fate of the euro

[From an email exchange]

Mike Norman writes:

What is happening in the Eurozone exposes the inherent flaws in that system and why the euro will never supplant the dollar as the world's main reserve currency. Without an overriding Federal Government or similar authority, that is unconstrained in its ability to lend to the system in the time of crisis, the euro is simply a "fair weather" currency and nothing more.

After this crisis is over, the dollar will not only regain its status but become even more widely used as the currency of exchange, I predict. Only if the EU political structure changes, and the ECB is granted the authority to be a true, lender of last resort, will the euro have a chance of rivaling the dollar. And outside of the euro, no other currency even has a chance.

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