THE PRESENT RISE IN THE VALUE OF THE EURO RELATIVE TO OTHER CURRENCIES SUCH AS THE STERLING AND THE US DOLLAR HAVE ON EUROZONE MEMBERS AND THEIR NON-EURO TRADING PARTNERS.
Through the first half of the 20th century, the British pound was the world’s reserve currency. The sterling accounted for 60 percent of all international trade. However, the cost of two world wars impoverished the UK. The US economy was growing at a considerable rate after the 2nd world war, but the same was not be said in the UK due to the fact that the UK economy was in heavy debt and investors began to loose confidence in the sterling.
The decline in the UK’s economic growth made the sterling loose its momentum as being the world’s reserve currency. The dollar began gradually, replacing the sterling as the new reserve currency. Not until the late 1950’s did the dollar have complete control, before then Central Banks still held a majority of their reserves in sterling. This later changed with the continuous economic growth in the US. The US (was) attractive because it seem(ed) secure. (James2008); reason being; only the US had liquid financial markets, it was free of capital controls, and there were no other alternatives to the dollar.
Over the years, the dollar had its fair share of economic decline especially during the war in the 1970’s. Thanks to President Nixon’s administration, saw the decline in the value of the dollar. At the time, no other currency could match the dollar as a reserve currency, so the dollar remained as the dominant reserve currency. Today, the Euro is a major contender as the next global reserve currency and with the current decline of the US dollar, the value in the Euro has ...