The EU (European Union) has already experienced its challenges related to the Role of Euro Currency. It has major banking problems at NYSE: CS (Credit Suisse Group AG), NYSE: DB (Deutsche Bank AG), and almost all major financial institutions in Italia. A debt crisis had been experienced by Greece.
The UK voted to leave the EU in 2016 with the Brexit vote, even though Britain is not among the euro currency’s members because Britain still uses the British pound. However, Brexit made uncertainty around trade deals with the members of the EU.
Negative interest rates have introduced by the ECB so that it can spur growth, and the response of the European economy for several years was fairly well. However, the euro-based countries still have a challenge.
Back to Use National Currencies
Redenomination is the official term for installing the old currency and leaving the euro. Such conversions are almost certainly not as complex as in 2002 when the adoption of the euro was coordinated, but uncertainty still should be noticed by investors.
Two major changes are required for redenomination. The first is the adoption of a new currency officially within the borders of one country. This means current wages and price adjustment, and also other value for the new money proportionately.
Second, the Role of Euro Currency as the value of international currency needs to be priced to the forex market (foreign exchange market). On many factors such as the relative risk of the devalued currency and the national government productive capacity, this is the base.
It seems that many countries such as Greece that are in debt with many foreign creditors would reduce their real payment burdens by trying to redenominate. To do this, the one way is to lower the purchasing power of the repaid debt by redenominating and immediately initiate strong inflation.
An example of close history is between 1867 and 1918 when the Austro-Hungarian Empire collapsed. After the empire collapsed, many member states hoped to have a currency by keeping the Austro-Hungarian. Unfortunately, the very expansionary monetary policies were used by some irresponsible governments to pay off much debt of World War I.
It sparked hyperinflation in early 1920 in Austria. Hungary, Slovenia, and others have experienced something similar. In the 1930s, a new currency had to be used by each of the previous member states often backed by silver or gold.
Role of Euro Currency and Its Impact on Forex Market
If the replacement of the euro was the only change with competing national currencies, the euro elimination would only be made real long-term monetary policy changes, namely how the supply of lending and money controlled by the central bank so that economic growth could be created.
There was a sold of Eurozone in part on the concept of making counterpart for eurozone to the US Federal Reserve. The monetary authority would be decentralized back to member states by removing the euro. For example, the money supply and interest rates in Germany would be controlled by a German central bank.
The national currencies could be recapitalized by banks about the Role of Euro Currency although they may have to maintain more balances of foreign exchange for reconciliation and regional trade. The relative value of several international assets would be changed by the various exchange rates.
In a European job market that less-inflationary, workers would see an increase in relative earnings compared to the government in Europe with loose monetary policies. For example, in highly productive Germany, workers would found it easier to find services and goods produced in Slovenia which is less productive.
But, it seems that there would be a change of other economic policies if the euro failed. Prepare yourself to trade forex with didimax forex broker and learn how to trade various currencies and understand the Role of Euro Currency.
