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It's a Reality
Wednesday, 13th of May, 1998 The 2nd May WeekendOver the 2nd-4th May 1998 weekend, the Euro became reality when the mutual exchange rates between 11 "In" countries were fixed. That is to say, the Deutschemark-French Franc rate and the French Franc- Italian Lira and the Italian Lira-Deutschemark rates (and so on) were all fixed with respect to each other, as follows:
Please note: The above table does not include the Luxembourg Franc, even though it is one of the "In" currencies, because the LUF is identical to the BEF. The market today is not exactly at the above rates, but is very, very close. In any case, the Central Banks of the "In" countries stand committed to bring the market to the above rates by / on 1st Jan 1999. The market itself is unlikely to protest or try and thwart the central banks. So, what is the significance of 1st Jan, 1999? Today we do not know the answer to the question, "How many Dollars to a Euro?". This question will be answered on 1st Jan 1999. The clue to the answer is the agreement that on 1/1/199, 1 ECU = 1 Euro. That is to say, the Euro-USD rate on 1/1/99 will be the ECU-USD rate that will prevail on that date. The question to ask, therefore, is "What will be the ECU-USD rate on 1/1/99?" We also do not know today the answer to the question, "How many Marks to the Euro?" Please note that we know how many Marks are supposed to buy 1 ECU today, namely, DEM 1.97738 = ECU 1. This is ECU-DEM Central Parity rate. But, we do not know how many Marks to the Euro. This question is also going to be answered on 1/1/99.
The Metamorphosis
Today there are 3 currencies in the ECU basket which are not going to be in the Euro. These are the Sterling Pound, the Danish Kroner and the Greek Drachma. On the other hand, there are 2 currencies in the Euro, which are not part of the ECU basket. These two are the Finnish Markka and the Austrian Schilling. So, for the ECU to change into the Euro, 3 currencies have to go out and 2 currencies have to come into the basket. And this is what makes the question, "What will be the ECU-USD rate on 1/1/99?" all the more interesting. That may automatically answer the question, "How many Marks to a Euro?" Or, it may not. That is to say, the present ECU-DEM Central Parity itself may change. This is a question we need to answer.
There are issues relating to the Euro that are not as yet fully clear. This is just an attempt to record aspects of what we know so far, as also to say what is as yet unknown. No predictions are being made, nor trade recommendations being given. Neither the firm or the authors bear any responsibility for any losses that might accrue to anyone due to any actions taken/ not taken based on this report or otherwise. Indian Rupee Market | FX Thoughts | Fundamentals | Oil's Well | Graphs Gallery | Colour of Money | Money Markets | Research | Risk Management | Government Policies | Utilities & Humour | Free Data | Your Queries | Testimonials | Links | About Us | Site Map
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The Euro Cometh
