| In January, the euro will become the official currency in 12 European countries. How will
this affect Americans? Not since the Roman Empire, has Europe seen a collection of
nations banded together in a conversion to one single currency, according to Texas
based financial expert Evan Shelan. Shelan and several international economists
consider this move toward economic union as the greatest economic and political
decision of our time. By the end of February 2002, the German mark, French franc,
Italian lira, and U.S. dollar will no longer be accepted at businesses throughout the
Eurozone.
What does this mean for Americans traveling overseas? How will U.S. businesses be
affected? What new factors will investors face? And what can you do to prepare for the
euro conversion?
Currently, savvy travelers can take advantage of the strong U.S. dollar, which gives the
greenback enhanced purchasing power in Europe. Even though the euro has been in
use through electronic transactions and bonds since 1999 by export and financial
industries, it has performed poorly against the dollar since its inception.
Filip Abraham, professor of economics at the Katholieke Universiteit Leuven in Belgium
and former advisor to the European Central Bank, said that both economic forces and
illegal conversion are factors in the strength of the dollar. Studies have revealed that
eastern European mafia operations have used the black market for converting large
sums of marks to dollars to euros. Fear and low confidence in the euro have plagued
the Eurozone. After January 1, things will change.
Economists predict that once Europeans can see it and touch it, the value of the euro will
rise. Since there will be only one currency throughout the Eurozone, shopping and doing
business across borders will be easier. Tariffs will be dropped. Prices will become
more competitive. However, there will be fewer currency exchange centers. American
travelers and tourists beware. Those handy ATMs won’t be your best place to convert
dollars, and bank fees will increase making it more expensive to convert dollars to euros
on the fly.
So what can travelers do to get the best rate for their dollars? According to Abraham, the
best way to convert your dollars is to go to the main banks of Europe and exchange all
your dollars at once since there is a fixed cost per transaction. Avoid exchange centers
and ATMs at airports, travel agencies, and hotels.
However, Evan Shelan, founder of the first successful currency exchange website
eZforex.com, has another answer: Buy your euros online BEFORE you go. Today, you
can find more and more web sites, travel agencies, and US banks which offer easy
currency exchange at competitive rates. No lines, no waiting… the currency is mailed
directly to you.
According to Shelan, the well-prepared tourist will read up on the Eurozone, be aware of
the exchange rate of the euro and manufactured pricing, and learn how to bargain with
merchants. His motto, “Think in dollars, negotiate in euros.” Shelan predicts induced
inflation when shopkeepers round up prices as they re-ticket their merchandise. He
warns tourists to avoid ATMs for security reasons. Pickpockets are known for targeting
unwary Americans.
Shelan advises small businesses to learn about their European vendors, compare
prices by researching the Internet, and create a better bidding cycle through multiple
vendors in different countries. Buyers should balance the search for better quality goods
and services with discerning price analysis and negotiation. They should be aware of
where the quality merchandise is located. Italy is known for its fine leathers, Germany
produces high-quality automobiles, and Scandinavia boasts a burgeoning
telecommunications industry.
Speculation on the impact of the euro conversion is varied. Erling Olsen, international
economist and former speaker of Parliament in Denmark, a European Union country
which has yet to adopt the euro, predicted that in the short run the conversion will not
affect the American economy very much. However, in the long run, “the euro might to
some extent replace the U.S. dollar as a reserve currency.” This, he said, might
increase the value of the euro against the dollar, which may in turn improve the
competitiveness of the U.S. economy.
Olsen advised American investors, “Do not invest to make money on fluctuating
exchange rates unless you like to be gambling. Do only invest in European industries
which seem to be competitive which ever the probable euro/U.S. dollar exchange rates
might be.”
On the other hand, Robert Weaver, Professor of Economics at Pennsylvania State
University, said, “Trade may be facilitated by a common currency though this is doubtful
to be measurable. If euro use leads to ability to bank in the U.S. in euros, this might
facilitate arbitrage of currency smoothing business transactions.”
Weaver sees the world needing only one “common” currency right now, the dollar.
However, Weaver speculated, “It is possible this could change in the future, though
whatever currency takes over must be backed by internationally respected institutions
and laws.” His advice to travelers, “Exchange their old currency to dollars if they have a
shoe box full of leftovers!”
Confusion in the early days of the euro conversion is inevitable as Europeans adapt to
using and thinking in euros. However, Filip Abraham predicted, “In five years time, few
people will remember how it was before the Euro conversion. Many believed that the
Euro would not work, that it would fail miserably.” But now, Europeans are getting used
to the idea of a single currency. Abraham exclaimed, “They might not like it, but it’s
there.” Ultimately, with the benefits of a single currency outweighing the costs, the big
winners in the euro conversion will be Americans, as we develop new relationships with
a new Europe.
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