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Euro started as a concept in 1995. It became a currency in 1999. It became a hard currency in 2002mby replacing all the currencies of the constituent countries. All the countries involved tried to keep the currency strong, despite the inflation and budget deficits.There were complaints from the strong countries against the weaker ones. Many countries later joined Euro, and there are now 19 countries which use Euro as their currency. Here is an account of the rise and fall of Euro through time.

January 1999

Euro was launched as an electronic currency and was used by banks and foreign exchange dealers. The local currency exchange rate if franc and others were fixed about Euro at that time. Euro began to fall in the international currency markets and was not able to compete with the dollar. This boosted the American economy and the stock market.

September 2000

The European Central Bank asked for help from other banks when it touched its record low of $0.84. The central banks intervened to help.

January 2001

After Bush had become President of the US, he faced the prospect of recession. Government officials declared that they would let the market forces decide the movement of the dollar. There were 13 interest rate cuts by the US central bank. The Federal Reserves made it less likely for investors to move money into US markets. So, the euro became stable and started increasing against the dollar.

January 2002

Euro was launched as a cash currency. It was used by 300 million citizens of the eurozone. The US budget was increasing, and there was a trade deficit which caused concern on the international currency markets. Traders thought that investors might not want to finance the huge deficit by sending the money abroad. So, the dollar began to fall.

December 2002

The ECB agreed to cut interest rate by 0.5%. This made Euro strong in the international market. The dollar recovered a bit after the intervention of the central bank.

December 2003

Euro reached its record high against the dollar in December 2003. The weak Eurozone was not helped by the high Eurozone, making exports very expensive. The trade deficit made the US dollar weak.

These fluctuations in dollar-euro rate over the years led many economists to rethink whether to go for managed exchange rates or not.

British voters have recently voted Britain out of the European Union. The debate is now going on regarding the impact of Brexit on the British economy and the rest of the world. The effect of Brexit can be seen in three stages.

Short term consequence

If you have a British company exporting good from Europe, then there won’t be any effect of Brexit on your business. You will still be able to ship products without any tariff. If you are the owner of a European bank whose majority employees are from London, then also it is 100% for the British employees to work in the European bank. There has been a slight decline in the stock market right after the announcement of the Brexit. This shows that investors are not worried about the future profits even after Britain is pulled out of the European Union. But there has been a 7.6% drop in the British pound against the dollar. This is a huge drop compared to the 0.36% regular fluctuations. This may lead to inflation for British consumers as the imported goods will become expensive. The export industries will also become very competitive.

Mid-term consequence

After some months the impact of Brexit is more about real economic activity, rather than about financial market. There is uncertainty in the decision of whether to make capital investments or hire people. Imagine you are an American company having headquarters in London. Now would you consider staying in London or moving to Frankfurt? Even if the companies decide to stay where they are, the ‘wait’ to see what happens can disrupt economic activity for several months. The central bank is not in a good state to help. There may be an increase in the interest rate. So, there are many uncertainties. The business confidence has declined, and there is limited support from the central bank. Britain is at risk of recession.

Long term consequence

People are worried how a post-EU Britain will look like. One possibility is that Britain can become like Switzerland and Norway.These countries are not part of EU but maintain free trade with them. But this will allow free migration for the rest of the EU member states. It will also mean accepting EU regulations for businesses.

The financial and recession problems will eventually go away. The primary concern is whether Britain will choose to be a major international trade center like now by ignoring the fact that they wanted to vote out of EU, or become a small and isolated island.