- The Washington Times - Sunday, December 30, 2001

The euro, Europe's new common currency, had been expected to challenge the mighty dollar for global supremacy. So far it hasn't happened, and financial specialists say it may be years before the euro makes a serious run at the world's premier currency.
The euro has been trading on global currency markets for three years but will debut Tuesday in the form of notes and coins for the 12 nations that are using it as a common currency.
It started its life riding high, with one euro buying $1.17 on Jan. 1, 1999. Ever since, it's been a downhill slide.
In October 2000, the euro hit bottom around 85 cents, 27 percent below its starting point. Even though it rebounded a bit this year, the euro is still trading at less than 90 cents.
"The euro is still very much a stepchild to the dollar," said Mark Zandi, chief economist at Economy.com. "Expectations that it would soon rival the dollar as a top reserve currency have not proven correct."
Because currencies are supposed to reflect the underlying strengths or weaknesses of their economies, the dollar's continued strength against the euro this year is puzzling.
The U.S. economy went into a serious slowdown in the summer of 2000 and has been in a full-blown recession since last March.
If that wasn't bad enough, the terrorist attacks on September 11 dealt another severe blow, paralyzing for a time the country's financial center in New York.
But through it all, the dollar remained strong, not only against the euro but against the Japanese yen and other currencies. A Federal Reserve index of the dollar against a market basket of other currencies stood in December at essentially the same level where it had begun the year.
As the U.S. economy slid into a recession, most other major economies suffered similar downturns this year, analysts note. And it turns out that the terrorist attacks, by raising new concerns about safe havens, actually proved to be a boon for the dollar.
"After September 11, safety has become a very important consideration for investors, and the United States is the biggest economy around with the largest and most liquid financial markets," said David Wyss, chief economist at Standard & Poor's in New York. "The United States may not be as safe as we once thought it was, but it is still a lot safer than anywhere else."
The euro has not been helped by a wobbly shakedown period. Policy miscues by the new European Central Bank left currency traders questioning the central bank's ability to manage the common currency and interest rate policies in the euro area.
Even as the central bank gains more credibility, analysts say structural issues will keep the euro lagging behind the dollar.
Federal Reserve Chairman Alan Greenspan in a speech last month attributed the dollar's relative strength against the euro to the huge surge in the productivity of American workers in recent years. He predicted this disparity will continue until European labor laws become more flexible.
Mr. Greenspan said higher American productivity brought greater returns to investors and thus explained "the steady flow of capital from Europe to the United States in recent years."
Analysts predict that if Europe addresses the structural problems, the euro and dollar probably will be on more equal footing.
But for the coming year, analysts see the euro increasing in value only slightly against the dollar. Merrill Lynch chief economist Bruce Steinberg foresees 1 euro buying 92 cents at the end of 2002, compared with 88 cents currently.
And 100 years from now? Analysts said they wouldn't be surprised to see a world with far fewer currencies, possibly only three the dollar, the euro and the yen and all three linked to one another to limit big changes in value.
"As the world becomes more globalized, you don't want the uncertainty of multiple currencies," Mr. Wyss said. "As trade becomes more important, the world will want to eliminate huge swings in currency values."

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