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Gunild Pak

Are you ready for the Euro?

Are you ready for the Euro?
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Published by Today's Dallas Woman Magazine
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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Economics
 
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