Global Finance (3): International Role of Euro Flashcards
Why was the euro launched? Did business still use the US dollar after?
To challenge the US dollar. Banks still used US dollar though.
What, similar to the US treasury bonds, was issued and when?
June 15, 2021, the Next Generation EU issued €20 billion in bonds to boost EU economies.
Why is it better for European countries to use the euro? (2 reasons)
- Prevents risks of exchange rates that arise when you use the US dollar.
- Selling EU bonds to foreign investors lowers borrowing costs of EU.
How is the euro spread across the world?
33%-50% of all Euro banknotes are outside of Eurozone.
20% of central banks dominated by euros.
What happened to the euro between 2007 and 2008?
Temporarily more popular than US dollar for issuing debt but stopped after 2008 crisis.
How did the 2008 financial crisis hurt the euro?
People fell back on stable dollar, hurt euro’s reputation.
Why is it important for Europe to stop relying on the US dollar?
- US has been more and more protectionist.
- EU wants ‘strategic autonomy’ -> not being subject to large fines when they go against US sanctions like Iran does.
How does the NGEU help? What challenges does it still face?
Helps: Backed by entire EU makes it safer for investors. Is a similar low-risk investment to the US.
Hurts: NGEU bonds only $1 trillion while US is $20 trillion.
What is the future looking like for the euro, according to Mark Carney?
Digital currencies can change the US dollar’s dominance by creating multiple global reserve currencies.
What’s a potential global reserve that can happen in the future?
Share global reserve with euro and Chinese yuan.
