the weight of the world economy.The implementation of the new currency could also, over time, have a negative impact on the economy. The euro presents the U.S. with a new trading competitor and may challenge the imperial dollar as the dominant medium of exchange in the world (Francis). Should there be a large shift into euros; the dollar would fall in value somewhat on foreign-exchange markets. It could also nudge up interest rates, because foreigners will be investing less in U.S. securities. Perhaps 0.25 percentage points on long-term government bonds, guesses Peter Kenen, an economist at Princeton University in New Jersey(Francis). The dollar, however, currently has a lead over the euro. It accounts for 57 percent of the world's foreign exchange reserves. A prediction made by the European Commission states that U.S. banks will have the responsibility of dealing with euros in addition to dollars. This will bring about large scale alterations of the U.S. banking system to account for the dual currency usage. U.S. financial institutions that deal largely will sizeable dollar holdings will find their capital market status failing as the cost of capital falls in response to the euro. Banks will take a big hit from the euro, and will need U.S. assistance to prevent a recession that the Federal Deposit Insurance Company would not be in a situation to manage.Another possible negative aspect of the euro is its encouragement for trade within Europe. If trade increases within European nations, trade with the U.S. may grow slower and American corporations may face harsher competition in world markets. It is not necessary to presume that the launch of the euro is a win or lose situation for the U.S.; it is a possibility that both the U.S. and Europe will flourish. Although in the past there has only been one leading currency at a time, it may be promising for two currencies to dominate the economy and compete with each other at the same time.To...
