US Dollar_presentation Final1

7/29/2019 US Dollar_presentation Final1

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CAN US DOLLAR MAINTAIN ITS SUPREMACY AS WORLD CURRENCY?

GROUP MEMBERS:

LOW MEI LENG GM 03230

SHARIENA ADILAH ABDUL RAHIM GM 03117

ABDUL HARIS ABDUL MALIK GM 02766

NUR FADHLINA ILHAM GM 02820WONG CHEE HAUR GM 03111

EFFAHRIN MOHD FARID GM 03170



AREAS OF DISCUSSION:

o HISTORY OF US CURRENCY

o WHY US DOLLAR STILL MAINTAIN?

o INTERNAL CHALLENGESo EXTERNAL CHALLENGES

o RECOMMENDATION

o IS THERE ANY ALTERNATIVE CURRENCY?

o CONCLUSION



HISTORY OF US CURRENCY



HISTORY OF CURRENCY

Barter System

• Goods exchange with goods

• Started way back in 6000BC

Limitations

• Double Coincidence of Wants

• Absence of Standard Value

•

Indivisibility of Commodities• Absence of Store of Value



EVOLUTION OF CURRENCY



US DOLLAR HISTORY

The U.S. dollar was created and defined by theCoinage Act of 1792.

The value of gold or silver contained in the dollar was then converted into relative value in theeconomy for the buying and selling of goods.

The Sterling Area



GOLD STANDARD

Gold certificates were used as paper currency in the UnitedStates from 1882 to 1933, these certificates were freely

convertible into gold coins.



OTHER MAJOR CURRENCY

Euro Currency Renminbi or

Yuan Currency





)



a)US Dollar being used as Invoice Currencies in

International Trade Transactions

Both US dollar and euro are

extensively used in

international trade

transactions, with the dollarstill the dominant currency



b) US dollar as international currency transaction

US Dollar has an 86 per cent share in the daily currency transactions of some

$3.2 trillion around the world



c) Dollar as international reserve currency

o Central banks the world over, find it difficult to reduce the share of dollar inthe reserves held by them.

o Since the majority of the countries export so much to the US, there is a regular

flow of dollars into the coffers of their central banks.

o This flow can be checked only if these countries stop exporting to

the US.



d) US economic factor

US strength comes from

economy's size,

the flexibility of labor and product markets,

prospect for higher productivity growth and

favorable investment returns over the medium term

As long as inflation is moderate and stable, financial markets sound andunfettered, and government spending efficient and sustainable,

Standard & Poor's Ratings Services expects the US to continue enjoying

the benefits a key currency brings and to maintain the 'AAA' rating.



e) Banking and Capital Market

• A century ago, there was little question about what money was. It

was gold, or to be exact, it included national currencies like dollars and

pounds, but only to the extent they were convertible into gold. There

was but one real money.

• Now there are dozens and dozens of national currencies, none of

them tied to gold. But there is a hierarchy of currencies that in practicesignificantly reduces the real number. That hierarchy is based not on

relative value, which can and does fluctuate, but on their function in

the world economy. The U.S. dollar is clearly No. 1.



f) Problem of Eastern Europe

• International bank lending to Eastern Europe started to grow briskly only

when the Federal Reserve wanted to save the world from deflation in 2001-2via its policy of permanently low interest rates.

• But until about the middle of 2007, lending to the regions had been growing

in line with deposits from the region. Only after the subprime crisis broke in

the summer of 2007 did net lending to the region take off.

• This suggests that the total ‘at risk’ from the region should be around thearound $250 billion in quick credits granted since then (the last creditors take

typically the first losses). It is generally assumed that the bulk (90%) of this

exposure is to EU banks.



g) US Dollar is safe haven

• The U.S. dollar (USD), the global market's safe-haven and reserve

currency, showed once again today that the bullish uptrend it is

currently in shows no signs of stopping and turning around anytime

soon.

• According to Bloomberg, "The dollar rose to a three-year high against

the currencies of major U.S. trading partners as the plunge in the yenand Swiss franc left the world’s reserve currency the only refuge from

economic turmoil.

• There are no alternatives to the dollar right now,' said Geoffrey Yu,

London-based strategist at UBS AG, the world’s second-biggest currencytrader. 'Investors see the rest of the world collapsing, and the yen is no

longer a safe haven.'”



• Japan's economy shrank at a 14.2 percent annual pace in the first

quarter - better than first thought, but still its worst quarterly contraction

yet as trade wilted amid the worst global recession in decades

• Exports to the US fell 45.4 percent in May, marking the 21st straightmonthly decline, the finance ministry said. US-bound auto exports

nosedived 54.8 percent - grim news for major Japanese auto makers such

as Toyota Motor Corp and the parts suppliers that depend heavily on the

American market. Japanese shipments of auto parts to the US were down

47.8 percent.

h) Japan export is dependent on US consumer



i) US Dollar as international oil transactions

For the past 30 years the US Federal Reserve has printed hundreds of

billions of oil-backed petrodollars, which US consumers provide to othernations by purchasing imported goods. Then those nations use these

dollars to purchase oil/energy from OPEC producers. These billion of

surplus petrodollars are recycled from OPEC and invested back into the

US via Treasury bills or other dollar-denominated assets, such as US

stocks, bonds and real estate

The structural imbalances in the US economy are sustainable as long as:

• Nations continue to demand and purchase oil for their energy /

survival needs

• The world’s monopoly currency for global oil transactions remain the

US Dollar and

• The three internationally traded “crude oil markers” remain

denominated in US Dollars.



Overall view

There are three fundamental characteristics that a reserve currency must have:

• it must inspire confidence,

• it must be fully convertible into other currencies, and

• it must have a high degree of liquidity.

Additionally, why US still maintaining their position is because:

• Military control of the world’s remaining oil and gas reserves, their

associated pipelines and at the sea and land transit routes for these

resources

• Financial control of global economy. Control of world’s economy can

be maintained if dollar remains world’s premier reserve currency via

monopoly petrocurrency states and the attending macroeconomics

benefits

• 65% of the international trade today conducted in dollar

• Maintenance of petrodollar recycling system - allow Federal Reserve

expand global credit to enforce US financial control and continue

massive debt-financing to pay for US military control



INTERNAL CHALLENGES OF US DOLLAR

o US debt increasing

o Slowing economic growtho Larger current account deficit (also known as trade deficit)

o Money supply and Inflation



US debt increasing

• US national debt has been increasing through out the years.• Nearly one half of US debt was for crude oil and the rest is foreign

investors holding US treasuries securities

22

$0

$2,000,000,000,000

$4,000,000,000,000

$6,000,000,000,000

$8,000,000,000,000

$10,000,000,000,000

$12,000,000,000,000

$14,000,000,000,000

283236404448525660646872768084889296000408

Year

U.S. National Debt

U.S. National Debt



• Debt might also increase due to

- Financial bailout for subprime debt

- US consumer and government spending behavior

• Increasing levels of debt cause growing concern that the US government

may start to default on its debt.

• It would cause shockwaves throughout the global financial situation andpeople would sell dollars.

• Government may also just increase the money supply to finance the

growing national debt because they can’t sell any more bonds.

• This would increase the money supply and inflation and indirectly causes

depreciation in the value of the dollar.

23

US debt increasing



• US economic growth was greatly impact due to financial crisis 2008.• US GDP growth rate decreases to as low as -4% on year 2008.

• Contributing factor :

- Falling of US consumer confidence level

- Credit crisis issue

- Housing market slump

24

Slowing economic growth



Falling of US consumer confidence level• US consumer confidence drops significantly low on year 2008 due to the

financial crisis 2008.

• This indicates that consumers are more conscious on their spending since

some might have loose their job.

• There will be less demand for dollars and put downward pressure to US

dollar.

25




Credit Crisis issue

• Credit crisis - financial institutions redefine the riskiness of borrowers,

making it difficult for debtors to find creditors.

• Due to the subprime mortgage crisis which started on 2007, the credit

crisis and banking losses starts to emerge. (Citigroup, Merrill Lynch)

• At least 100 mortgage companies in US have either shut down, suspended

operations or tried to seek for government bail out. (Bear Sterns,

Fannie/Freddie)

• This will put downward pressure on the dollar because they are forcing the

US government to borrow more to bail them out.

26




Housing market slump

• Subprime mortgages gained popularity and started to increase in

the early 1990s.

• The housing price crash started on 2006 due to the effect of

repossession was too great.

• The high repossession by banks was due to a lot of borrower

default on their payment.

27




• This property crash has drag down the economy growth.

• Due to this property crash, it has affected the US financial market and

indirectly discouraging foreign investors from buying US dollars.

.

28




• Trade deficit = imports > exports (net outflow of money)

• US current account deficit started to increase since 1990.

• In 2008, the current account deficit was over $700 billion.

29

Larger current account deficit (trade deficit)



• Trade deficit increases due to:

- Growing trend on consumer and government spending and low

personal savings.

- Increase demand in import goods due to cheaper in price

- Increase in oil price

30




• Debt build-up cannot continue forever.

• Eventually it will become too large that foreigners will be worry on their

ability to service and pay back this debt.

• Evidence show Asian bankers are no longer so confident in the American

economy.

• They are seeking to divest from the dollar and reduce their dollar

holdings.

• As this occurs the dollar will have to fall as there are insufficient buyers

of US debt.

31




Inflation : - rise of price level of the goods and services.

- money supply grows faster that the physical output

of goods and services.

• Since 1980s the inflation starts to drop and gradually consistent

through out the twentieth century. But the US money supply

across twentieth century has been increasing.

• Theoretically, with the drastic increase of money supply faster

than physical output of goods and services, price level will

increase. However, in 2008 US see a fall in price level. =>

Contradict with theory

32

Money Supply and Inflation



• Money supply depends on the velocity of circulation. (how many times it

changes hand)

• The problem is that the velocity of circulation is falling faster than the

Federal Reserve can increase the monetary base. (due to financial crisis)

• With the rising unemployment, falling investment and falling

consumption, people are more cautious on their spending.

• The falling consumption has cause less demand on dollar and this could

decline the US dollar value.

33

Money Supply and Inflation



EXTERNAL CHALLENGES OF US DOLLAR

o Market condition (crisis)

o Switching away from US dollar issueso Refusing to use Petrodollars (US dollar) by petrol exportation country



Market condition

Global economic Crisis 2008

• Great depreciation with its global effects impact the economy around the

world.

• With declining image in Europe, Asia and elsewhere, the value of the

dollar is still maintaining strong.

• Value of the dollar supported by the mercy of countries with large foreign

reserves as China Japan, oil producing nations, etc. (even many Americansare trying to diversify their dollar)



Market condition

• US under strong pressure in handling of the economy, which used to beeasily managed just by printing dollar bills (Treasury Bills)

• Currently, future value of the dollar is monitor closely by other countries

and regions.

• Their anxiety will not go away too easily, meaning the instability and

concerns regarding the international currency system will basically remain

as a concern to them.



Oil crisis 2007-2008

• During 2007 and 2008, the US dollar continue to weaken when the oil

price increases due to the oil spike and US Federal monetary policy cycle.

• Oil price increase -> less demand for crude oil -> less demand for US dollar-> US dollar will weaken

• Dollar was already in a downtrend due to the loosening of monetary

policy (cutting interest rates).

Market condition



Market condition



Switching away from US dollar issues

• Many countries are diversifying away from dollars into euros.

• Russia threatened to price its huge oil and gas exports in euros

instead of dollars.

• Part of a strategic shift to forge closer ties with the EU, and to hedgeagainst the falling dollar.

• Russia is the world’s second largest oil exporter.

• Sweden cut dollar holding, from 37%to 20%, with the Euros share

rising to 50%.

h f d ll



Switching away from US dollar issues

• United Arab Emirates (UAE) converts Dollars to Euro. The declining

US dollar has caused UAE to convert 8% of its $25 billion foreign

exchange reserves into Euros.

• Kuwait and Qatar have indicated that they plan to make similarmoves.

• Other countries, including Russia, Venezuela, Indonesia and Iran

also have decided to cut their dollar reserves.



Refusing to use Petrodollars

• Petrodollar is a United States dollar earned by a country through the saleof petroleum.

• Petrodollar warfare also known as oil currency wars are raising concern.

• Most countries rely on oil imports, they are forced to maintain large

stockpiles of dollars in order to continue imports ,so that demand of dollar

remain high.




US TRADE DEFICIT (US) EURODOLLARS OIL CONSTRACTS

Foreigners exchange

their exports for our

US dollar

Foreigners hold US

dollars for repayment &

purchases

Foreigners exchange their

eurodollars for crude oil

THE UNITED STATES THE HOUSE OF SAUDI PETRODOLLARS

Direct foreign

investment in T-bills &

capital markets

Saudi Arabia exchanges

petrodollars back to the

US

OPEC crude oil producers

accumulate petrodollars

THE PETRODOLLAR EXCHANGE



• Political enemies of the US have some interest in seeing oil denominated

in euros or other currencies .

• EU will also gain same benefits as US if the euro replaced the dollar.

• US fear Organization of the Petroleum Exporting Countries (OPEC) will

switch its international transactions from a dollar standard to a euro

standard .




Countries refuse to use US dollar as petrol dollar

• Iraq actually switch US dollar to Euro in Nov. 2000 .

• Iran has now opened an oil bourse which does not accept U.S. Dollars .

• Mid-2006 Venezuela indicated support of Iran's decision to offer global oiltrade in the euro currency.




RECOMMENDATION

R d ti



US should focus more internally to make sure they are fundamentally strong

and remain as competitive advantage in order to overcome the challenges face

by US dollar.

Here are some recommendations:

• Debt Restructuring

• Strengthen economic growth in maintaining its global responsibility

• Strengthen regulatory policy

46

Recommendation

R d ti



a) Debt Restructuring

• US should restructure their debt financing as not to be dependent on

foreign investors. (Minimize borrowing/outflow of money)

encourage their citizens to spend money to buy local products & services

encourage US manufacturers to produce made in US products encourage exports to reduce trade deficit

• Suggestion might fail :

- US companies are not able to export product and services of thesame value

- US will definitely have to rely heavily on importing crude oil means it

may always be in deficit

47

Recommendation

Recommendation



b) Strengthen economic growth in maintaining its global responsibility

• US has losses its seat to European Union as world largest economy

• Short term solution : US bailout and stimulus package

• Long term suggestion : maintaining a large reserve currency, open

credit markets, efficient financial market, strong

and diversified financial institutions and a central

bank

• Suggestion might fail :- EU consist of 27 countries (might further increase), Euro had been

performing well against US dollar and have strong fundamental economic

=> Difficult for US to become world largest economy

48

Recommendation

Recommendation



c) Strengthen regulatory policy

• US should have strong regulatory policy in order to avoid unfavorable

events to happen (Enron Accounting scandal, subprime loan mortgage

crisis => affect US dollar value)

• Suggestion might fail :

- Current regulatory policy will only be effective for certain period of time

49

Recommendation



“Rising of New Economic Power”

CAN THESE ALTERNATIVE CURRENCY REPLACE US$?



The Japanese Yen (¥),

Chinese Renminbi &

Euro

JAPANESE YEN & CHINESE YUAN



JAPANESE YEN & CHINESE YUANRole to the global economy

Economy Japan China

Economy 2nd largest after US (US$

14.3 trillion)

3rd largest after US and

Japan

GDP (Nominal) US$ 4.28 trillion (2007) US$ 4.4 trillion (2008)

Gross Foreign Exchange

Asset

US$ 5 trillion (2008)

(hold 21% of foreignheld US treasury)

US$ 2.3 trillion

Other Real Economic Growth

(average):

1960s – 10%

1970s – 5%

1980s – 4%

Current Account

Surplus:

2006 – US$ 250 billion

2010 – US$ 300 billion

JAPANESE YEN



Japanese Yen

Yen (JPY) Exchange

Rate

Japan as Reserve

Currency

Failure of Yen asInternational Reserve

Currency

Benefits of weak Yen

Value

CharacteristicsDeterminants of Yen

(JPY) value

Trail of Yen (JPY)

JAPANESE YEN

JAPANESE YEN



Japanese Yen

Characteristics

• not a major power

• sensitive to changes inexchange rates

• country is quite smalland short on naturalresources

• yielding a very lowinterest rate

JAPANESE YEN

JAPANESE YEN



1970s –

• ¥271 per US$1 in 1973, ¥290 to ¥300between 1974 and 1976; surpluses up to¥211 in 1978; dropping to ¥227 by 1980.

1980s –

• From ¥221 in 1981; dropped to ¥239 in1985

Affect of Plaza Accord 1985 –

• ¥239 per US$1 in 1985, the yen rose to apeak of ¥128 in 1988; of ¥123 to US$1 inDecember 1992

• Began to ‘Internationalize the Yen’ *

Post-Bubble / Crisis

• low of ¥134 to US$1 in February 2002

Japanese Yen

Determinants of Yen (JPY) valueTrail of Yen (JPY)

Yen is determined in foreign exchangemarkets by the economic forcesof;

a) The supply of the yen in themarket is governed by the desireof yen holders to exchange theiryen for other currencies

b) The demand for the yen is

governed by the desire of foreigners to buy goods andservices in Japan and by theirinterest in investing in Japan

JAPANESE YEN

JAPANESE YEN Macroeconomic trend



Year GrossDomestic

Product

US DollarExchange

InflationIndex

(2000=100)

Per Capita

Income(as % of

USA)

1955 8,369,500 ￥360.00 10.31

1960 16,009,700 ￥360.00 16.22

1965 32,866,000 ￥360.00 24.95

1970 73,344,900 ￥360.00 38.56

1975 148,327,100 ￥297.26 59.00

1980 240,707,315 ￥225.82 75 74.04

1985 323,541,300 ￥236.79 86 63.44

1990 440,124,900 ￥144.15 92 105.82

1995 493,271,700￥

122.78 98 151.552000 501,068,100 ￥107.73 100 105.85

2005 502,905,400 ￥110.01 97 85.04

Above is the exchange rates of

JPY for 2009

Value

Appreciates

And as at September 10, 2009 – the US Dollar exchange was

at￥ 91.855

JAPANESE YEN – Macroeconomic trend

JPY Foreign Exchange Reserves



JPY Foreign Exchange Reserves

Japan's foreign exchange reserves consist mainly of securities and deposits denominated in foreign

currencies, gold, and reserve positions and special drawing rights at the International Monetary

Fund.

Yen as Reserve Currency

• Japanese Yen is widely used as a reserve currency after the US dollar, Euro and the Pound Sterling.

• Classified as ‘undervalued’ though Japan’s current account surplus

JAPANESE YEN



Massive asset

bubble in Japan in

1989

Reliant on growth

in both the US and

Europe

Economy remains

heavily dependenton exports

Japan's banking

sector and national

balance sheet

Currency

intervention by the

Bank of Japan

(BoJ)

High Volatile &

expensivetransaction costs

Failure towards

being Int. ReserveCurrency

The position of yen as the reserve currency was further pushed aside with the rise of the Euro in 1999.

JAPANESE YEN

Benefits of Weak Yen



Benefits of Weak Yen

Weakness of the Japanese Yen over the past few years has lent significant

support to the economy;

• Export become cheaper

• Import become expensive

Japanese corporations do a great deal of business abroad

• Depreciates, these hedging operations can become sources

for additional revenue; Growth, wages and unemployment

should improve.

China Chinese Yuan (Renminbi)



China – Chinese Yuan (Renminbi)

• Microeconomic Trend

• Macroeconomic Trend• Inflation

• Yuan/ Renminbi

– Revolution of RMB towards InternationalCurrency Reserve

– Yuan RMB as International Reserve Currency» Impact on US economy

– Failure of RMB as International CurrencyReserve

» The use of Renminbi in International

Transactions• Measure for China




Year Gross

domestic

product

US dollar

exchange

Inflationindex

(2000=100)

1955 91,000 2.46 19.2

1960 145,700 2.46 20.0

1965 171,600 2.46 21.6

1970 225,300 2.46 21.3

1975 299,700 1.86 22.4

1980 460,906 1.49 25.0

1985 896,440 2.93 30.0

1990 1,854,790 4.78 49.0

1995 6,079,400 8.35 91.0

2000 9,921,500 8.27 100.02005 18,308,500 8.19 106.0

2007 25,730,600 7.62 112.6

Micro & MacroEconomic Trend





Inflation

By January 2008, the inflation rate

rose to 7.1%, highest inflation rate

since 1997. But in Oct 08, it falls to6.6%





Revolution of RMB towards International Currency Reserve

China started overhauling the global monetary system by boosting the useof an alternative to the U.S. dollar. It started from the concern about its

investment if the dollar should collapse.

Since the crisis in

2008, RMB has been

appreciating together

with the Euro.





Yuan RMB as International Reserve Currency

The use of Renminbi in international trade and financial transactions is limited

when compare to major currencies such as US dollar, the Euro, Pound Sterling

and even the Japanese Yen.

When Yuan appreciates:• Bankruptcy of export-oriented enterprises in China’s costal cities

• Massive unemployment

• People Republic of China (PRC) government to buy fewer United States treasury

bonds, causing bond prices to fall and bond yields to rise, hampering

improvement in the U.S. economy.





Yuan Appreciation –

Impact to the US

causing stagflation, a

collapse of US oil

dependant industries,

massive unemployment

and other direct

economic consequences

not improve the US's

international balance by

reducing its trade

deficit.

Commodity trade aside,

the renminbi's

appreciation will also

hurt the US in capitalaccount items

US has more to gain if China maintains the renminbi at a stable level.

China Chinese Yuan (Renminbi)

Chinese Yuan (Renminbi) vs Dollar



Challenges in

its economy

China's banking

system remains

opaque and risk-

laden

Lack of necessity

Driving forces

in exports

Poor

transparency

Governmentrestrictions

Failure of Yuan

Chinese Yuan (Renminbi) vs Dollar

Chinese Yuan (Renminbi)



The use of Renminbi in International Transactions





Measure for China

• have to ease restrictions on money entering

and leaving the country, make its currency

fully convertible for such transactions,

continue its domestic financial reforms and

make its bond markets more liquid

• needs to curb its excessive dependency on

external demand

• focus on initiating internal demand—the

only effective way to build a strong nationaleconomy


The EURO



The EURO

The EURO

European

Union (EU)

European

Monetary

Union

(EMU)

Euroland

Economic

Growth

Eurocurrency

•Fraction as Reserve Currency

•Euro Dominant

•International Role of Euro

- Euro Performance in Trade

Invoicing- Euro Performance in Financial

Market

•Factors determine the ultimate

of the euro as a reserve

currency

•Benefits of the euro arise to

worldwide

•The Drawbacks

European Union (EU) European Monetary



Union (EMU)

Growth of the European Union since the Treaty of Rome, 1957

Member

State

Totals:

Year of entry into the EU

1957 1973 1981 1986 1995 2004 2007

Belgium

France

Germany

Italy

LuxembourgThe

Netherlands

Denmark

United

Kingdom

Ireland

Greece

Portugal

Spain

Austria

Finland

Sweden

Cyprus

Czech

Republic

Estonia

HungaryLatvia

Lithuania

Malta

Poland

Slovakia

Slovenia

Bulgaria

Romania

6 9 10 12 15 25 27

A country can not issue a Euro unless it is part of the EU. A country can be in the

EU and allow not use the Euro (only the UK, and Denmark have a derogation

privilege). A country can be outside the EU and still use the Euro as their official

currency.

European Monetary

Union (EMU) had to

fulfill the followingconvergence criteria:

1)Price stability .

2) Long-term interest

rate.

3) Government budget

deficits. Not more than 3% of Gross Domestic

Product (GDP),

4) Total government

debt . No more than 60%

of GDP, exchange rate

stability.

5) Central bank

independence

Only 16 out of 27 EU

members.

Euroland Economic Growth



Member State

sorted by GDP

GDP in

billions

of US $

(2008)

GDP

% of EU

(2008)

Annual

change

% of GDP

(2008)

GDP

per capita

in PPP US$

(2008)

Public Debt

% of GDP

(2008)

Deficit (-)/

Surplus (+)

% of GDP

(2008)

Inflation

% Annual

(2008)

European Union 18,493.0 100.0% 0.9 30,393 61.5 -2.3 3.7

Germany 3,653.3 19.8% 1.3 35,441 65.9 -0.1 2.8

France 2,843.1 15.4% ? 34,208 68.0 -3.4 3.2

Italy 2,330.0 12.6% -1.0 30,580 105.8 -2.4 3.5

Spain 1,622.5 8.8% 1.2 30,620 39.5 -3.8 4.1

Netherlands 862.9 4.7% 2.1 40,431 58.2 1.0 2.2

Belgium 507.1 2.7% 1.1 36,235 88.6 -1.2 4.5

Austria 418.7 2.3% 1.8 39,634 65.2 -0.4 3.2

Ireland 290.7 1.6% -2.3 42,539 43.2 -7.1 3.1

Finland 273.1 1.5% 0.9 36,217 33.4 4.2 3.9

Portugal 248.9 1.3% 0.0 22,189 66.4 -2.6 2.7

Slovakia 88.9 0.5% 3.5 22,040 27.6 -2.2 3.9

Luxembourg 57.0 0.3% -0.9 82,306 14.7 2.6 4.1

Slovenia 53.3 0.3% 3.5 29,472 22.8 -0.9 5.5

Latvia 35.8 0.2% -4.6 17,071 19.5 -4.0 15.3

Cyprus 24.5 0.1% 3.7 29,829 49.1 0.9 4.4

Malta 8.4 0.1% 2.7 23,760 64.1 -4.7 4.7

EMU

Euroland Economic Growth



‘Euro GDP Growth Rate’

Eurocurrency



y

• Besides 16 countries mentioned above, the currency is also used in afurther five European countries

• November 2008, with more than €751 billion in circulation, the euro isthe currency with the highest combined value of cash in circulation in theworld

• The introduction of the euro was signed to answer the challenges of globalization

• Sensitive to changes in interest rates

Fraction of Euro as Currency Reserves



y

• The Euro became a reserve currencysince Jan 1, 1999 with $1.18 p/euro.

• Euro has overpasses other countrieswith their official foreign exchangereserve of 18% in 1999 to 25.5% in2006 and 28% by the early 2008

(Figure on the right)

• The US dollar’s made up 71.5% of itsforeign reserve, the largest shareduring period 1987 – 2006 but in2007 it shrunk nearly to 65.6%.

• The euro remains underweight as a reserve currency in advanced economies whileoverweight in emerging and developing economies: according to the IMF

Euro – Flexible Exchanges Rates



g

Exchange rate at start is put to USD1;Green

Jan-1999: €1 = $1.18; in Jul-2008: €1 = $1.57Red

Jan-1999: €1 = ¥133; in Jul-2008: €1 = ¥168Blue

Jan-1999: €1 = £0.71; in Jul-2008: €1 = £0.80



Ultimate Euro



1. The euro did not follow the dollar correlation

2. During the crisis recovery, Euro money and debt markets are deemed to

be as attractive as dollar markets

3. Opportunity for the Euro

4. Substantial progress in euro financial market integration

5. Exchange Rate Policy advantage

6. Flexible exchange rates

‘A single currency makes the euro area an attractive region for third

countries to do business, thus promoting trade and investment.’

Euro Drawbacks



The EURO Drawbacks

Single Currency Policy Low growth and relatively highinflation

Political shock Economic shocks



CONCLUSION

Can US $ maintain its supremacy as world currency?





Yes,

The US$ will continues to reignsupreme as International Currency

Reserves



THANK YOU

Documents

US Dollar_presentation Final1