The euro as a reserve currency

This is what they all wanted:

What concerns European policymakers most is the lockstep rise against China\’s yuan. Beijing has clamped the yuan firmly to the weak dollar for over a year, quietly benefiting from the export advantages. It accumulated $68bn (£41bn) in reserves in September alone as a side-effect of holding down the currency. Fresh reserves are mostly being invested in eurozone bonds, pushing the euro higher.

French finance minister Christine Lagarde said it was intolerable that Europe should \”pay the price\” for a dysfunctional link between the US and China. \”We want a strong dollar, and we have reiterated it again in the strongest manner,\” she said after this week\’s Eurogroup meeting. China\’s trade surplus with the EU reached €169bn (£154bn) last year.

They wanted the euro to be a reserve currency. Now that it is they\’re complaining of course. Don\’t you just hate it when you get what you said you wanted?

12 comments on “The euro as a reserve currency

  1. How China and the United States manage their currencies is no business of the European Union.

  2. Incidentally I missed the story was by AEP. This is really the culmination of what I have noted before is AEP’s main solution to any problem – devaluation. We’re now into the every country should devalue, as if the BoJ and Eurozone can devalue without other currencies appreciating. The only way this is even somehow possible is very high inflation, and I think that must be what he is after.

  3. I stand corrected, Matthew.

    I suspect you are right about the devaluation, though. Every international organisation seems to encourage beggar-thy-neighbour.

  4. I think the problem with the Euro is that too many people in it are Latins. The tradition in the south of Europe is to get out of any economic problems by devaluing the currency rather than undertaking politically difficult economic reforms. So they don’t like it when suddenly they are forced to take on the responsibility of being a reserve currency.

    We will have to see what they do, but it does not bode well for the future of the Euro as any sort of alternative to the dollar. After all, the size of the economy that supports the Euro is rather important, but people will still want an enduring value for their currency. The American dollar is strong because the Americans have resisted inflation quite well. The Swiss Franc “punches above its weight” because it has done even better. Will the Euro turn out to be an enduring store of value? Maybe if the Germans have anything to say about it.

  5. I imagine the Americans have resisted it (not brilliantly, the dollar has fallen against most currencies in the last 30 years with an obvious exception) because of the reserve currency status and the advantages it brings. We (the exception) seemed quite happy to let our currency go to ruin the second we shed its global role.

  6. They may want a strong $ but haven’t they spent years talking it down by claiming the US current account deficit is unsustainable? What did they expect to happen?

    Anyway, if China pegs to the $ how is that the US’s fault? If anything the US would like the Yuan to rise as well.

  7. “They may want a strong $ but haven’t they spent years talking it down by claiming the US current account deficit is unsustainable? What did they expect to happen?”

    I think you overestimate the power of politicians and underestimate the power of free markets and supply & demand. The US current account deficit does not weight on the dollar because European politicians say so.

    “Anyway, if China pegs to the $ how is that the US’s fault? If anything the US would like the Yuan to rise as well.”

    I’m not sure the blame is being put on the US.

  8. French finance minister Christine Lagarde said it was intolerable that Europe should “pay the price” for a dysfunctional link between the US and China. “We want a strong dollar, and we have reiterated it again in the strongest manner,”

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