The euro (sign: €; code: EUR) is the currency used by the Institutions of the European Union and is the official currency of the eurozone, which consists of 18 of the 28 member states of the European Union: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. [3] [4] Lithuania is adopting the euro as its official currency in place of the lithuanianlitas on 1 January 2015. [5] The currency is also officially used by a further four European countries, and unilaterally by two others, and is consequently used daily by some 334 million Europeans as of 2013. [6] Outside of Europe, a number of overseas territories of EU members also use the euro as their currency.

Additionally, 210 million people worldwide as of 2013-including 182 million people in Africa-use currencies pegged to the euro. The euro is the second largest reserve currency as well as the second most traded currency in the world after the United States dollar. [7] [8] [9] As of August 2014, with more than €995 billion in circulation, the euro has the highest combined value of banknotes and coins in circulation in the world, having surpassed the U. S. dollar. [note 15] Based on International Monetary Fund estimates of 2008 GDP and purchasing power parity among the various currencies, the eurozone is the second largest economy in the world. [10]

The name euro was officially adopted on 16 December 1995. [11] The euro was introduced to world financial markets as an accounting currency on 1 January 1999, replacing the former European Currency Unit (ECU) at a ratio of 1: 1 (US$1.1743). Physical euro coins and banknotes entered into circulation on 1 January 2002, making it the day-to-day operating currency of its original members. [12] While the euro dropped subsequently to US$0.8252 within two years (26 October 2000), it has traded above the U. S. dollar since the end of 2002, peaking at US$1.6038 on 18 July 2008. [13] Since late 2009, the euro has been immersed in the European sovereign-debt crisis which has led to the creation of the European Financial Stability Facility as well as other reforms aimed at stabilising the currency. In July 2012, the euro fell below US$1.21 for the first time in two years, following concerns raised over Greek debt and Spain's troubled banking sector. [14] As of November 2014, the euro-dollar exchange rate stands at ~ US$1.25. [15]

The euro is the sole currency of 18 EU member states: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. These countries constitute the "eurozone", some 332 million people in total as of 2013. [6]

With all but two of the remaining EU members obliged to join, together with future members of the EU, the enlargement of the eurozone is set to continue. Outside the EU, the euro is also the sole currency of Montenegro and Kosovo and several European microstates (Andorra, Monaco, San Marino and the Vatican City) as well as in four overseas territories of EU members that are not themselves part of the EU (Saint Barthйlemy, Saint Pierre and Miquelon and Akrotiri and Dhekelia). Together this direct usage of the euro outside the EU affects nearly 3 million people.

It is also gaining increasing international usage as a trading currency, in Cuba, [7] North Korea, and Syria. [8] There are also various currencies pegged to the euro (see below). In 2009, Zimbabwe abandoned its local currency and used major currencies instead, including the euro and the United States dollar. [9]

The most obvious benefit of adopting a single currency is to remove the cost of exchanging currency, theoretically allowing businesses and individuals to consummate previously unprofitable trades. For consumers, banks in the eurozone must charge the same for intra-member cross-border transactions as purely domestic transactions for electronic payments (e. g., credit cards, debit cards and cash machine withdrawals).

The absence of distinct currencies also theoretically removes exchange rate risks, although the imposition of transfer restrictions in 2012-13 Cypriot financial crisis means that the situation is not quite so simple. The risk of unanticipated exchange rate movement has always added an additional risk or uncertainty for companies or individuals that invest or trade outside their own currency zones.companies that hedge against this risk will no longer need to shoulder this additional cost. This is particularly important for countries whose currencies had traditionally fluctuated a great deal, particularly the Mediterranean nations.

Financial markets on the continent are expected to be far more liquid and flexible than they were in the past. The reduction in cross-border transaction costs will allow larger banking firms to provide a wider array of banking services that can compete across and beyond the eurozone. However, although transaction costs were reduced, some studies have shown that risk aversion has increased during the last 40 years in the Eurozone.

The most obvious benefit of adopting a single currency is to remove the cost of exchanging currency, theoretically allowing businesses and individuals to consummate previously unprofitable trades. For consumers, banks in the eurozone must charge the same for intra-member cross-border transactions as purely domestic transactions for electronic payments (e. g., credit cards, debit cards and cash machine withdrawals).

The absence of distinct currencies also theoretically removes exchange rate risks, although the imposition of transfer restrictions in 2012-13 Cypriot financial crisis means that the situation is not quite so simple. The risk of unanticipated exchange rate movement has always added an additional risk or uncertainty for companies or individuals that invest or trade outside their own currency zones.companies that hedge against this risk will no longer need to shoulder this additional cost. This is particularly important for countries whose currencies had traditionally fluctuated a great deal, particularly the Mediterranean nations.

Financial markets on the continent are expected to be far more liquid and flexible than they were in the past. The reduction in cross-border transaction costs will allow larger banking firms to provide a wider array of banking services that can compete across and beyond the eurozone. However, although transaction costs were reduced, some studies have shown that risk aversion has increased during the last 40 years in the Eurozone.

Problems of the Euro

The United States dollar (sign: $; code: USD; also abbreviated US$ and referred to as the U. S. dollar, American dollar or US Dollar) is the official currency of the United States and its overseas territories. It is a Federal Reserve Note and consists of 100 smaller cent units. [4]

The U. S. dollar is fiat money. It is the currency most used in international transactions and is the world's most dominant reserve currency. [14] Several countries use it as their official currency, and in many others it is the de facto currency. [15] Besides the United States, it is also used as the sole currency in two British Overseas Territories: the British Virgin Islands and the Turks and Caicos islands.

The dollar has a special place in the global economy, being essentially the first truly international currency.

First world monetary system spontaneously formed in the XIX century after the industrial revolution based on gold monometallism in the form of the gold standard. Legally, it was framed intergovernmental agreement at the Paris Conference in 1867 that recognized the gold the only form of world money. In this system belonged dollar in 1837 received the gold content. The currency freely convertible into gold. Gold was used as generally recognized world money. Gradually the gold standard outlived its usefulness, because did not meet the increased scale of economic relations and conditions regulated market economy. The First World War was marked by the crisis of the world monetary system. The gold standard ceased to function as money and monetary system.

World War II monetary system was legally intergovernmental agreement reached at the Genoa international economic conference in 1922. Its foundation was gold and foreign currencies. Conversion of currencies into gold was carried out not only directly (US, France, Britain), but also indirectly through foreign currency (Germany and another 30 countries whose monetary system based on gold exchange standard). National credit money were used as international payment and reserve funds. However, in the interwar period reserve currency status has not been officially confirmed by either in one currency and the pound sterling and the US dollar disputed leadership in this area. The Great Depression of 1929-1933. sharply devalued dollar, its gold content decreased by more than 40%.

World War II led to the deepening crisis Genoa monetary system. Anglo-American experts in 1941 rejecting the idea of returning to the gold standard, sought to develop principles of a new world monetary system that can ensure economic growth and limit the negative social and economic consequences of the economic crisis. The desire to secure a dominant position US dollar in the global monetary system is reflected in terms GD White and formed the basis of the so-called Bretton Woods monetary system, which has become a third world monetary system. Was introduced gold exchange standard based on gold and two reserve currencies - the US dollar and to a much lesser extent pound sterling. Gold continued to be used as an international payment and reserve means.

Building on its increased monetary and economic potential and gold reserves, US dollar equated to gold to secure for him the main reserve currency status. For this purpose, the US Treasury has continued to negotiate a dollar for gold to foreign central banks and government agencies in the official price, established in 1934, Based on the gold content of its currency (USD 35.1 troy ounce equal to 31.1035 grams). This exchange applied only to member states of the International Monetary Fund (IMF), represented by their central banks.

For normal functioning gold standard required the constant increase in reserves to meet the needs of economic expansion and the corresponding payment relations in global economic growth and support optimal ratio between gold and currency (dollar) reserves, so that the price of gold was equilibrium. Failure to meet these conditions naturally had to lead to the collapse of the Bretton Woods monetary system. Lack of reserve money (dollars, pounds sterling, gold) led to inhibition of world trade and excess - to destabilize the system of fixed exchange rates. High growth rates of foreign exchange reserves, compared with growth rates of gold reserves over time component questioned the ability of the US to keep the convertibility of the dollar in reserves by central banks set official price. In the 60's Dollar virtually monopolized the sphere of international payments, which is reflected in the growth of its share in the international reserves of the state from 9% in 1950 to 75% in 1970.

2.3 Yuan

Fiscal challenges in the Eurozone and the United States go unaddressed as policy-makers turn inward.

Slowing global growth and decreased demand for exports make adjustments to China's growth model more challenging, leading to stalling economic reforms.

Trade and financial flows decrease at the global level as countries increase their focus on regional economic ties.

G2 Rebalancing

Political deadlock and stagnating growth in Europe lead to a gradual disintegration of the European Monetary Union.

Structural reforms lead to a gradual unwinding of imbalances between the G2: the United States and China.

Continued high consumption in the United States and the growth of China's consumer economy place pressures on natural resource sustainability.

Reconciling a Two-speed World

While Europe successfully reforms its economic governance and emerges as a fiscal union, markets focus on the US's unsustainable fiscal situation.

Emboldened by strong growth, China actively pursues the use of the renminbi (RMB) for trade among emerging markets.

An alternative monetary order emerges with the RMB at its core, and questions emerge about how to reconcile this two-speed world.

These scenarios are based on a series of strategic conversations among industry, public policy and academic leaders from around the world. They are not intended to be mutually exclusive predictions or the only possible outcomes. They provide a tool to foster strategic thinking about these challenges, to stretch the boundaries of what is perceived as possible and to open up new avenues of potential solutions.

Currency Uncertainties

A Business Issue

This section begins by explaining why uncertainties related to international currencies create important challenges for businesses, and calls for an assessment of possible alternative future developments of the international monetary system.

In a globalized economy, an orderly international flow of money is essential. If these flows are uncertain or prone to disruption, global prosperity can be undermined. In recent years, the vulnerabilities of this international monetary system have become increasingly apparent through persistent global imbalances, instability within the Eurozone and a series of increasingly global financial crises.

The international monetary system consists of conventions, policies and institutions governing international payments, the choice of exchange rate regimes and the supply of reserves. It creates an environment where international currencies facilitate the exchange of goods and services, the accumulation of savings, price setting and calibration as well as the denomination of balance sheets for both public and private actors. It also allows countries to run deficits in their external accounts and should ideally contribute to a gradual rebalancing of these external positions.

Uncertainty around the smooth operating or expected outcomes of these functions can have significant implications for business, in particular when exchange rate volatility affects costs and prices. This may impinge on investment decisions and reduce opportunities for growth and job creation - a dynamic playing out around the world today. The possibility of micro - and macro-shocks makes medium - and long-term planning more complex, in particular regarding revenue targets, liquidity management and supply chains. Small and medium-sized enterprises are particularly affected as they lack the resources multinational companies can devote to complex treasury operations.

Rapid Global Trade and Capital Integration with Fragmented Economic Governance

The rapid global integration of trade and capital flows over recent decades has been a key driver of global growth. World trade almost tripled from the early 1990s to 2010, while international capital flows increased almost five-fold over the same period (see Figures 1 and 2)

These dynamics also fuelled the ongoing shift in economic power towards emerging economies that have greatly benefited from the opportunities of foreign investments, global supply chains and open capital flows.

Despite this rapid integration of economic activities, global cooperation on regulating these flows remains limited. The international monetary system remains largely unchanged from its origins in a world that was significantly less economically and financially integrated (see Appendix: Historical Overview of the International Monetary System). Many observers believe this played a role in fuelling the global financial crisis that began in 2008. The crisis spurred an unprecedented degree of global coordination through the G20 process, including a commitment from the French Presidency in 2011 to reform the international monetary system. However, a focus on dealing with immediate pressures, in particular stemming from Europe's debt crisis, has since overshadowed these global coordination and reform initiatives.

Many economists and policy-makers in the West argued that a free-floating regime of convertible currencies would lead to automatic adjustments and the most efficient allocation of resources at the global level. But developments over past decades have not matched these expectations. Countries have not universally discarded the management of exchange rates, and have often resorted to resolving domestic economic challenges without regard for external impacts. This has led to an accumulation of substantial macroeconomic imbalances that have left the international monetary system increasingly fragile.

It is clear that given these pressures, this system has to evolve. The widespread view is that the world is moving towards a multipolar currency system based on the euro, dollar and yuan, in which greater competition between reserve currencies would lead to greater discipline to maintain the respective economies in balance. But the path to such a system is highly uncertain. These currency areas, each of which could serve as an anchor for global stability, face the need for significant internal adjustments that constrain their international roles. This will be further explored in the following section.

The World Economic Forum's Euro, Dollar, Yuan Uncertainties initiative is aimed at exploring challenging futures where adjustments within the euro, dollar and yuan areas have a profound impact on the evolution of the international monetary system. It builds on a series of strategic conversations with leaders from the public, private and academic sectors, exploring their most pressing concerns and uncertainties.

The purpose of this report is not to advocate or predict specific outcomes. Rather, it explores the critical uncertainties underlying the future international roles of the euro, the dollar and the yuan, and depicts possible future states for the international monetary system based on policy choices in each of the currency areas. The year 2030 was chosen as a benchmark for these scenarios in order to allow for significant structural adjustments to play out independently from current political constraints.

China has remained relatively recently in the quiet rivalry Western powers finally came out of the shadows and blooms before our eyes. Cheap labor, goods and artificial restraint of the yuan exchange rate played a role. China ranks second in the world in terms of GDP (2010) and the first in terms of exports. China trade relations established with North America, Japan, Western Europe and others. In the Republic of China focused a lot of branches of foreign corporations. Although ten years ago the word "China" and "low quality" were synonymous, it is now known that in China there are products in all price categories. Thus, the exported goods have including the highest standards of quality and in demand almost everywhere, not to mention the share of Chinese textile and other consumer goods in the markets of the world.