euro final presentation-4

8/8/2019 Euro Final Presentation-4

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EURO ( )


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THE ROAD TO EURO-

Road to euro is classified into 4 phases-


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PHASE- 1

(Prior to January 1999) On 2nd, May1998 a meeting was held in Brussels among the

member countries.

11 member European Monitory Union (EMU) adopted a singlecurrency EURO.


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PHASE-2

(1JAN1999 31 DEC 2001) EURO was introduced on 1 January 1999 and ECB started

functioning from this date.

It lead to the formation of common monitory and exchangerate policy.

Government debt instruments have been issued and inter-bank

transactions have been settled in EURO.


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PHASE-3

(TILL 30th JUNE 2002)

People converted their currency note , bank a/c to EURO.

Direct conversion from currency of a member country to

currency of another country was not permitted .


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PHASE-4

(FROM 1st JULY 2002)

National currencies of some countries have been taken out of

circulation.


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OVERVIEW-

Officially adopted 1.January,1999

Official user Eurozone (16 countries)

Ranking 2nd largest reserve currency

Nickname The single currency

Pegged by 11 currencies

Central bank European Central bank

Inflation 1.5%, March 2010


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Officially Adopted-

On 2nd May,1998 European Monitory Union (EMU) adopted a

single currency EURO.

The euro was officially adopted to world financial markets asan accounting currency on 1 January 1999, replacing the

former European Currency Unit (ECU).

Euro coins and banknotes entered circulation on 1 January2002.


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Official Users-

The euro is the official currency of the eurozone.

The eurozone consists of Austria, Belgium, Cyprus, Finland,

France, Germany, Greece, Ireland, Italy, Luxembourg, Malta,Netherlands, Portugal, Slovakia, Slovenia and Spain.

Outside the eurozone, the euro is also the sole currency of

several European micro states.


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United in Diversity - The uro


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Ranking-

The euro is the currency with the highest combined value of

banknotes and coins in circulation in the world.

The Eurozone is the second largest economy in the world.


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Pegged by-

Over 150 million people in Africa use a currency pegged to the

euro, 25 million people outside the eurozone in Europe andanother 500,000 people on Pacific islands.


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Inflation-

The general indices of inflation, show no major effect of the

introduction of the euro.

It had an effect on cheap goods which have seen their price

round up after the introduction of the euro.


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REASON FOR A SINGLE CURRENCY

EURO

Removal of intra-regional conflicts.

Ensuring peace among the European countries.

Ensuring a stable monitory system.

Removal of exchange risk.


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EUROPEAN CENTRAL BANK-

Headquarters Frankfurt, Germany

Established 1 June 1998

President Jean-Claude Trichet

Currency Euro

Reserves 526bn in total

Preceded by 16 national banks


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Central Bank-

The euro is managed and

administered by the Frankfurt-based

European Central Bank (ECB) and

the Eurosystem.

Eurosystem participates in the

printing, minting and distribution of

notes and coins in all member states,

and the operation of the eurozone

payment systems.


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TASK OF EUROSYSTEM-

define and implement the monetary policy

conduct foreign exchange operations

hold and manage the official foreign

issue banknotes


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Cont

promote the smooth operation of payment systems

collect the necessary statistical information either from

national authorities or directly from economic agents

review developments in the banking and financial sector


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IMPACT OF EURO-

Countries which previously had weak currencies have

benefited from lower interest rates and have easier access tocapital.

The introduction of the euro has had a positive impact on themovement of goods, financial assets, and people within theeurozone.

One of the striking benefits of a single European currency arelow interest rates due to a high degree of price stability


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Impact on various areas-

Trade

Investment

Exchange rate

Interest rate

Tourism


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1.Impact on trade-

Introduction of euro has increased trade within the eurozone

by 5% to 10%.

A recent study estimates this effect to be between 9% and

14%.


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2.Impact on Investment-

Introduction of euro led to increase in physical investmentby

5% in the eurozone.

FDIstocks have increased by about 20% during the first four

years of the euro.

The euro has most specifically stimulated investment in

companies that come from countries that previously had weak

currencies.


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3.Impact on exchange rate-

The adoption of common currency Euro led to the reduction of

the risk associated with changes in currency exchange rates.

The introduction of the euro created "significant reductions in

market risk exposures for firms both in and outside of Europe".


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4.Impact on interest rate-

The introduction of the euro has decreased the interest rates of

most members countries, in particular those with a weak

currency.

The countries whose interest rates fell most as a result of theeuro are Greece, Ireland, Portugal, Spain, and Italy.


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5.Impact on tourism-

The introduction of the euro has had a positive effect on

tourism flows within the eurozone.

Tourism has increased by 6.5%.


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EUROAGAINST OTHER

MAJO

R CURREN

CIES-

Exchange rate evolution of the euro compared to USD, JPY and

GBP.

Currencies Jan-1999 Jul-2008

USD 1 = $1.18 1 = $1.57

JPY 1 = 133 1 = 168

GBP 1 = 0.71 1 = 0.80


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GREECE CRISIS-

` Years of unrestrained spending, cheap lending and failure to

implement financial reforms left Greece badly exposed when

the global economic downturn struck. This whisked away acurtain of partly fiddled statistics to reveal debt levels and

deficits that exceeded limits set by the euro zone.


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Cont.

` Greece's credit rating -- the assessment of its ability to repay

its debts -- has been downgraded to the lowest in the euro

zone, meaning it will likely be viewed as a financial black holeby foreign investors. This leaves the country struggling to pay

its bills as interest rates on existing debts rise.


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ROLE OF IMF IN GREECE CRISIS-

International Monetary Fund (IMF) is supporting GREECE.

The IMF approved a three-year, 30-billion-euro ($38-billion)loan to Greece.

The IMF will make 5.5 billion euros immediately available toAthens, with 10 billion over the course of the rest of the year

from the IMF and 30 billion from the EU this year.


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BENEFITS OF EURO-

Reduction in transaction cost.

No exchange rate uncertainty.

Transparency & competition .


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FUTURE OF EURO-

` Between 2008 and 2010, several things went wrong in Europe,

the biggest of which was Greeces financial crisis.

` Greece's financial difficulties have exposed numerousweaknesses which threaten Europe's common currency. Now,

policy makers and economic experts are trying to find ways to

stabilize the euro.


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Conclusion-

It has led to financial integration thus significantly

reshaped the European financial system.

Euro has significantly decreased the cost of trade inbonds, equity, and banking assets within the eurozone.

Globally, the introduction of the euro has led to an

integration in terms of investment in bond portfolios,with eurozone countries and increased lending and

borrowing among the countries.

euro final presentation-4

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