Stardate 20010704.1935 (On Screen): A few years ago, a unified currency for Europe (prosaically called the "euro" [€], avoiding arguments about whether it ought to be called "pound" or "mark" or "franc"). Beginning with a value set comfortably higher than the US dollar, it has since sunk to well below it (dropping from its initial rate of $1.20 to about $0.85. This article speculates about the reason why, but misses what I think is the most likely reason.
The problem is that the European Central Bank has no track record. Managing a currency is very difficult, and there are a lot of philosophies about how it ought to be done. The Fed has made mistakes, but over the course of 65 years it's done a pretty decent job, and at this point people have a pretty good idea what to expect from it. But who the heck work at the ECB? What are their intentions? Are they going to be incompetent at carrying them out? How much will the EU interfere? Will the ECB be willing and able to make the hard decisions which will be politically unpopular like cranking back on growth to avoid inflation even though it means throwing people out of work?
The Fed can, does, and will continue doing so. After the ECB has ten years or so demonstrating that it has the will and knowledge to do the same thing, then I think you'll see more credibility for the currency. (discuss)
