Can the Euro Serve as a Safe Haven for Investors?
Posted: Sunday, December 12, 2010
by Milton Nichols
Currency Solutions
Forex dealers and experts around the globe are debating whether the euro can be considered a safe haven for investors and whether it is good for the euro to maintain its relatively high levels. In the past decade, the single European currency managed to become a leading world reserve currency rivalling the U.S. dollar, which served as a primary reserve currency for decades. The stable euro exchange rate added to its attractiveness although some prominent financiers questioned the ability of the single currency to survive a longer recession. For the time being, the euro not only managed to survive the global financial crisis but, in all probability, it can win the battle for the role of a leading world currency with the U.S. dollar.
Meanwhile, the U.S. dollar lost ground against the major currencies while the purchasing power of the euro remained high in the past few years and the euro exchange rate against the other major currencies continues to be relatively high. However, a possible explosion of public debt in Europe can jeopardise the status of the euro as a safe haven, analysts agree. The common sense of the European governments should alert them to take adequate measures to protect the euro form a possible free fall that will compromise the idea of the singe currency, experts add.
High-ranking officials in the European Central Bank hint there is another pitfall the euro could face. The mutual trust between the banking institutions in Europe and worldwide is the case in point because if the financiers stop to trust each other a new wave of financial crisis could occur that will hit the euro as well. Interbank lending is one of the pillars of the financial world so a confidence crisis will have a negative impact not only on the euro exchange rate but also on all major currencies.
The growing importance of the euro is obvious and its increasing popularity is undisputable but it is up to the European governments and the European Central Bank to assist the rise of the euro. Whether the euro will be considered a safe haven depends largely on political decisions that influence the overall economic development of Europe. In the years to come you can expect a fierce battle between the euro and the U.S. dollar for the title safe haven although some analysts cast doubts whether this is advantageous for a particular currency.
Dr Timothy Ross is an expert on the financial markets. Recommendation: If you need to make a large or regular euro payment consider the help of a euro exchange rate specialist as an alternative to your bank.
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