Douwe Osinga's Blog: Euro revival

Saturday, May 31, 2003

Euro revival

So the Euro rebounded and the economists all around the world scramble to come up with reasons to explain the behaviour, reasons that are not to incompatible with the reasons they used to explain the rise of the dollar. I guess that is what economists do.

I came up with another reason, one I haven't really read about anywhere else, so I thought, why not post it. Black money. Have a look at the grap below:

The most obvious thing to note is that the Euro went lower and lower until the end of 2000, when it started to go up again. This is the point when the physicial Euro was introduced. Before 2001 the Euro was only a calculation unit.

So people don't trust virtual currencies and that's why they all bought dollars? Hardly. I think it is more like this. All around the planet people have huge amounts of cash dollars and other currencies as their savings, because they don't really trust the economic stearmanship of their leaders. When it was announced that all Deutchmarks, French Francs and the smaller currencies would go and be replaced by something else, these people naturally changed their holdings into Dollars. Now that they can acutally touch the Euro, they're switching back.