Select Committee on European Union Eighteenth Report


PART 6: WHAT IS HAPPENING TO THE VALUE OF THE EURO?

THE FACTS

131. The value of the euro has fallen progressively against the US dollar, starting at US$1.18 on 1 January 1999, and reaching approximately US$0.85-0.86 in early November 2000. Figures 2 and 3 show its fall.




132. There was concerted intervention on behalf of the euro on 22 September 2000 by the monetary authorities of the United States, Japan, the United Kingdom, and Canada[123]. This temporarily raised the value of the euro to US$0.88 (95 Japanese yen), but in late October the euro was again trading at US$0.82-0.83. In early November the ECB intervened three times in under a week, and by 14 November the euro had risen to $0.86.

133. While the fall in the value of the euro over the period of less than two years since its launch has drawn a lot of comment, it is interesting to note that relative to exchange rate fluctuations over a longer period the recent decline does not look so remarkable. As Figure 4 below shows, over the period from 1979 to 2000 the exchange rate between the US dollar and the ECU (until 1 January 1999) and then the euro (from 1 January 1999) has fluctuated widely, from as high as US$1.40 to as low as US$0.65. The fall in the euro against the US dollar so far is less than the fall in the ECU—or rise in the dollar—between 1980 and 1985.


134. The balance of payments figures in Table 6 show that the euro-zone had a current account surplus from 1997 to 1999, with only a modest deficit in the first half of 2000. The financial side of the account shows very large outflows of direct investment and portfolio investment, particularly in 1998 and 1999. But for the first half of 2000 the financial account total has become positive to the tune of 44 billion euro, and the outflow of direct and portfolio investment, taken together, has reduced: it would appear that the export of financial capital from the euro-zone is slowing. However, at the same time the current account surplus of the euro-zone has started to fall (as a result of strong growth and of the rise in oil prices).

Table 6: Balance of payments: euro-zone (billion euro)

  
Current account
Capital account
Financial account
Errors and omissions
  
  
  
  
Of which
  
  
  
  
Total
Direct investment
Portfolio investment
  
1997
76.2
13.1
-
-48.1
-22.8
-
1998
43.3
12.7
-69.1
-102.6
-85.3
13.1
1999
22.8
13.3
-64.3
-138.8
-28.9
28.2
2000q1
-7.9
2.8
47.8
148.0
-192.6
-42.7
2000q2
-3.9
2.5
-3.8
-19.4
30.4
5.2

Source: ECB Monthly Bulletin, October 2000, table 8.1, p 47.
Note:Billion ECU to end 1998.
For each period, the current and capital accounts, the total figure for the financial account, and the figure for errors and omissions should sum to zero. This is not the case for 1997, where the ECB did not publish full data.




123   ECB Monthly Bulletin, October 2000, p 31.  Back


 
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