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USA is pumping in money prompting many experts to warn that it would lead to disaster. When they buy USD from the market which happens every so often when oil companies need to make payments, the price of the USD actually goes up because the demand increases for that.
Hi, I have read the article and also the comments. Can any body please explain me, if any country can print how much currency it wants and if that causes inflation then why cant a country like India with immense poverty print just a little extra money and distribute it to the poor to at least reduce poverty and at the same time keep inflation under control.
I had previously raised a doubt about USA printing money. Let me say it again. USA has been pumping paper money in to its economy at an alarming rate. Many experts view this as a big disaster as it would lead to fuelling inflation.
This doubt has not been answered so far. Can I expect some responses? I believe I have answered this question earlier but maybe that was not satisfactory.
Dow Jones hit a new high recently of about The money which went in was supposed to trigger investment in productive assets leading to halt the increasing unemployment. In actual practise,it has been told, this did not happen and the money injected went into stock market leading to the soaring stock index.
My question is How does the money get into the stock market? Then whom to believe. The reasons given are very credible. I know that Stock Market and country,s economic health need not have a positive correlation but such a negative correlation is surprising. It can be explained only by huge paper money going into the market. Do you have any other reason except telling dont believe what you read. Also do you know that the Dow is a price weighted index? The only big index today that is price weighted, why pay any attention to it at all?
I deeply apologise if I have hurt you. I have many times told you how I appreciate the trouble taken by you in educating persons in their efforts to solve the doubts they have regarding personal finance and general practical economics.. I do not know what has motivated you to undertake this job which must be eating into your valuable time. And unlike so many experts you dont expect any remunaration in return. Regarding DOW, my interest is only general.
I read some articles about finance which is theoritical and if I dont understand the practical side I run to you for solution. I still dont understand this. USA is pouring paper money into the monetary system expecting the system to use it in creating jobs. This is not happening as unemployment situation continues to be grim. Some of this money has apparently ended up in stock market.
I just wonder how? Are the banks borrowing cheap money from Govt and lending it to speculators of stock? Is this permissable under law? Against what security do the Bankers lend? Will this cause a bubble like real estate lending did 3 years back? These are some of the questions I have? Sir I am sorry for my harsh remark. I will do a full post on this subject, perhaps next week.
I feel that we have a tendency to give the index a lot more weight than it deserves when it is up and even more when it is down. I will give reasons on my thinking in a full post. Thanks for the information. By price weighted index I thought it was inflation adjusted. I did a little probe. DJ is calculated on stock prices of 30 companies.
It is not on the basis of market capitalisation. Hence it requires price adjustment to account for stock splits etc. I am not too computer savvy to follow your guidance.
Now the pot have value in market according to value of same money would be printed and given to pot maker …pot would be taken from him some one who is ready to buy pot would given pot taken money…in this way money would be entering…..
In spite of all heavy criticism Ben Bernanke has been pumping in more and more paper money into the financial economy of USA. Stock Market is up. Oil production is up. Corporates are doing well. Same thing apply to government, they print currency as per their reserves gold, deposits, etc. Ramamurthy has a complex knowledge of working of an economy. Ramamurthy comes in with more probing questions. But it is good. This guy is making a fool of you.
First of all the demand and supply curve he shows you applies for products and money is not a product but a medieam of exchange. Second if we take a look at his arguments that 1 crore is given to everyone then it including those carrying out production and services.
Hence the producers and service providers will increase the quality of their products and services using that money. They will charge more money from the consumers because they are providing better and improved quality of products and services and the consumers would be able to pay off due to their increased income. Hence an equilibrium would be created between demand and supply of goods and services. The increase in printing of money wouldnt have any negative effects on the economy.
Infact it will result in better facilities and higher standards of living. For example a bus service provider would use the extra money to add A.
C and better seating conditions to his bus and chargf more on the tickets. The consumer will pay more as he is no longer poor and has the power of the purse. He is not making any money out of this from gullible fools. Coming to your argument you are presuming that all people who receive a dole of Rs 1crore will use that money in creating productive assets. The money went into Stock Market.
Let me give you another example. Number of car owners will shoot up resulting in huge serge of demand for Petrol. More petrol has to be imported for which you have to pay in Dollars.
From where do the dollars come? India imports much more than what it exports. So,a dollar may cost Rs as against Rs All the additional rupees the Govt has printed may be used up in paying for Petrol. You didnt addressed on the question that money aint a commodity but a medium of exchange. Second why did the people invest in stock market? Btw Thats consumer behaviour which differs from place to place. Indian wont do that nevertheless taking your car arguement.
Well i think you didnt understood what i meant. The prices of other products would increase because there quality would increase. Hence people wouldnt accumulate enough money to buy more cars. Lance,you seem to agree that indiscriminate and repeated release of printed money into the economy will result in hyperinflation because you say people will not be able to buy a Car even with what remains out of 1crore cash.
Coming to your reaction to Manshu,s comment, whatever are the causes which lead to high depreciation of Re ,at least now Govt has to take action to see that it will not depreciate furthur. Do you think printing money will do this job? Printing money causes inflation. We are living in a low inflation peroid for too long and started to take things for granted. If printing money is so simple, there will be no poor man on the street. Generation never experience high morgtage payment will never understand the pain.
Why are you talking about history. People in ancient times used to barter. Then gold was used as a medium for exchange. Paper Money is being printed since the last years. The first central bank was founded in by William patterson The Bank of England. The gold coins were heavy and to overcome this drawback Gold certificate were issued instead of Gold coins. This started the tradition of paper money.
The bankers soon realized that they could issue more gold certificates than there were gold reserves. They issued ten times more certificates then there was gold. It increased to 20 times. The same system was implement throughout the globe. Now there is only a fraction of gold to back up the printed money. Centrals banks are printing money out of thin air. So the RBI can print more money for internal growth.
India can be rich only when the Indian currency is strong just like all western countries. One rupee should be one dollar. Indian currency is devalued due to the previous conditionalities of the IMF and the market forces after World Bank agent Manmohan Singh passed Globalization , Liberalization and Neoliberalization policies.
Somehow you ignore entirely the role of the Banks which print the money. The Governments then need to repay the loan via taxes and charges,so the people really have to buy their money ,which they actually borrowed without knowing it.
And the printers are indeterminate,but private,hidden behind lots of fronts. Without factoring that debt into the equation you really are giving a simplistic and quite unrealistic explanation of the whole debt ,cost of money business. And of course how many countries do you really think can ever actually pay face value for their money to the supplier?
I think the only exception to this is USD. I have heard that since all global trade esp Oil is in dollar that gives US liberty to print dollars without increasing inflation. Can someone plz explain in detail how?
All my queries in this subject almost clarified. So,in short,we need to be poor and then there wont be any huge demand , so there wont be any inflation, what a ridiculous explanation. So,modern day economics is just fooling people. Dear roy To alleviate poverty you require, among other things,money.
All this post is telling you is ,printing money does not alleviate poverty. So where is the question of modern day economics fooling people please? If we print money and give it to all then everybody will be rich and will stop to work.
Apart from doing this , we can pay and imports oil. Then we will be rich. But we dont do that. Please i want simple practical answer. No more long theory. Awesome article and easy to grasp. By this way the demand and supply stuff will remain the same because we have not elevated the status of the people by giving them extra money.
The issue of inflation becomes whether the printed money is spent on actual viable infrastructure, which enables economic growth and turns a profit in the macro sense—which creates new demand for the printed money so as to absorb the supply—or whether the printed money is spent on bridges to nowhere, which does not.
Why to handover the money to citizens? Changing cities to smart cities? Why do we require to print money to built infrastructure? But since this task is given to private players, you need to give them money, which inturn are either your citizens or foreign players.
Remember , the money printed by a country is a representation of how much goods and services you produce. If you print more money and produce less goods , then it will simply cause inflation. Now since only 10 Rs is in circulation these 3 ppl came to a conclusion by forces of market that 5 Bread cost 5 Rs and 5 Eggs cost 5 Rs. Now suppose suddenly this country prints 90 Rs more. But this will not change the no of resources country has.
Why do we need money to create infrastructure? Now, you can borrow the money and pay it back with interest over 20 0r 30 years, which doubles or triples the total cost. Or, you can print the money, which has some risk of inflation. IF the infrastructure enables the economy to grow, all the new money is absorbed over time. There ends up being the same ratio of economy to money. But IF the infrastructure is a boondoggle, and does nothing for economic growth, then you get direct inflation from the new money, since the money supply grows, but the economy does not.
The question is do we need money to build infrastructure projects. If the raw materials can be bought by barter system and labourers are willing to work for food directly, we dont need money. But according to my mind is concerned the country should print money not in more quantative bt in few for rural areas instead of urban areas , there z lack of infrastructure in rural areas i,e espcially lack of roads, ,educational institution and facilities, power supply, Health centres so on problems faced who lived in rural areas, to some extent urban areas r developing than rural.
For instance if we measure eco. Development on the bases of rural development eg life expectency, literacy rate, social infrastructure etc then eco. Indians pay in terms of INR. India has 22, tons of Gold and imports tons annually. I totally agree with what this one mint says abot inflation,rise in cost. I would like to thank onemint fir gjving me idea about this topic.
In the last graph, Re. Please see below given explanation. I have a idea Well, for one thing, there is no guarantee that the talented people stay in the country or do real work. If the newly minted money is spent selectively on actually-needed infrastructure projects, the infrastructure stays in the country, and if it is actually needed, it will grow the economy for decades to come. No reason why they talented people cannot become civil engineers and get paid to design bridges that can last years.
In the above article i want to say that if any country print more currency and Government of that country utilized that money on rural development or any irrigation scheme which is under taken by that government.
Suppose I am currently working in a mobile manufacturing company and getting rs salary pm. After being credited with one crore in my account I will surely not work for rs As a result my employer will have to offer me 2 lacs pm and this will increase cost of production of mobile immensely as I am not the only worker but there are thousands of other employees who will get or demand same kind of hike.
This will increase the price of mobile from say rs 10, to 10, I agree that if more money is printed and given away to people, it will only cause inflation. But, I still feel that there are other ways the extra money can be used — E. There could be a counter argument that we may not have enough hospitals to accommodate people if we provide free hospitalization. That may be true. But, then we can at least prioritize it to provide free treatment for life threatening diseases.
Or there could be an argument that people may take their health for granted and may engage in drug abuse, smoking etc. Yes, that may be a side effect. But, the value of free treatment would be more beneficial than the negative side effects. I am just a common man and not well versed in economics. So, just wanted to get feedback on my thoughts above. Do provide inputs on this. I understood what you said.
But i have a doubt. I feel that the demand may not vary with the same proportion as the money everyone gets in bank account. So ultimately if everyone gets more money then it may help. It is mis-conception, The country should have printed based on some accepted un-depreciated symbolic wealth like GOLD so that it can not be manipulated. But countries wanted to create wealth, so started manipulating the concept of currency. Same time they wanted to put the rules so that government wont get tempted to print more money.
Lets take example of penny stock. Supply-Demand concept worked well for stronger country to keep the value high by creating good perception and maintaining demand. They can easily print money encashing their power and others good perception One can not make reference itself as variable by applying supply-demand concept. Basically Government can print as much as possible. Currency value can go down even if wealth increases.
When people get rich, they are ready to pay more for goods, causing inflation. World facing economic problem like recession because of this kind of re0definition. When US can make world to depend on its currency, any devaluation means effect on whole world and they the-self take action which intern raise dollar value.
I wanted to thank you for your time for this fantastic read!! I definitely liked every bit of it and i also have you bookmarked to check out new things on your website. McDonalds, Vile Parle W — Printing more money could work if there are strict price controls across the board. Therefore control the prices AND control the money supply. What would be the reason for such a concurrent setup not to work? Notify me of followup comments via e-mail. Thank you and please verify your contest entry.
New Demand and Supply. More from my site Will reducing gold imports help the Indian economy? Detailed look at the numbers Why did countries get off the gold standard? Major international indices since the beginning of Hi My earlier comment at another post would be more relevant here. That, in my mind, is why I hope I am not confusing your readers further!
And yes Swaroop also made the same mistake of putting in a higher demand at Rs. I would like you to help me with this concept: Situation 1 of you case: Situation 2 of you case: Kindly help me clear my confusion. Swaroop was saying something different. I always thought it was gold. Thanks a lot for the post again. Hope this helps, thanks for your comment. Yes, this definately helps Manshu. Thanks a lot Reply. Glad to hear that! Dear Manshu your explanation was brilliant, by setting very good simple examples which everyone with a little knowledge of economics can understand better, hope you do same thing in future, All the best.
Thanks for the link! But in short, they wanted to control the world economy by billing Oil in Dollars and as a consequence forced other nations to follow suit the US accounts for a large part of demand for Oil and in turn countries had to automatically peg their currency level to the dollar Reply.
Thank you for your kind words Khalid. Collector's coins with various other denominations have been issued as well, but these are not intended for general circulation, and they are legal tender only in the Member State that issued them.
The design for the euro banknotes have common designs on both sides. The design was created by the Austrian designer Robert Kalina. Each banknote has its own colour and is dedicated to an artistic period of European architecture. The front of the note features windows or gateways while the back has bridges. While the designs are supposed to be devoid of any identifiable characteristics, the initial designs by Robert Kalina were of specific bridges, including the Rialto and the Pont de Neuilly, and were subsequently rendered more generic; the final designs still bear very close similarities to their specific prototypes; thus they are not truly generic.
Capital within the EU may be transferred in any amount from one country to another. All intra-EU transfers in euro are considered as domestic payments and bear the corresponding domestic transfer costs. This includes all Member States of the EU, even those outside the eurozone providing the transactions are carried out in euro. The official story of the design history of the euro sign is disputed by Arthur Eisenmenger, a former chief graphic designer for the EEC, who claims to have created it as a generic symbol of Europe.
While the Commission intended the logo to be a prescribed glyph shape, font designers made it clear that they intended to design their own variants instead.
Placement of the currency sign relative to the numeric amount varies from nation to nation, but for texts in English the symbol and the ISO-standard "EUR" should precede the amount.
The euro was established by the provisions in the Maastricht Treaty. In order to participate in the currency, Member States are meant to meet strict criteria such as a budget deficit of less than three per cent of their GDP, a debt ratio of less than sixty per cent of GDP, low inflation, and interest rates close to the EU average. In the Maastricht Treaty, the United Kingdom and Denmark were granted exemptions per their request from moving to the stage of monetary union which would result in the introduction of the euro.
The name euro was devised on 4 August by Germain Pirlot, a Belgian Esperantist and ex-teacher of French and history,and officially adopted in Madrid on 16 December Due to differences in national conventions for rounding and significant digits, all conversion between the national currencies had to be carried out using the process of triangulation via the euro.
The definitive values in euro of these subdivisions which represent the exchange rates at which the currency entered the euro are shown at right. The rates were determined by the Council of the European Union,based on a recommendation from the European Commission based on the market rates on 31 December The European Currency Unit was an accounting unit used by the EU, based on the currencies of the Member States; it was not a currency in its own right.
They could not be set earlier, because the ECU depended on the closing exchange rate of the non-euro currencies principally the pound sterling that day. The procedure used to fix the irrevocable conversion rate between the drachma and the euro was different, since the euro by then was already two years old. While the conversion rates for the initial eleven currencies were determined only hours before the euro was introduced, the conversion rate for the Greek drachma was fixed several months beforehand.
The currency was introduced in non-physical form traveller's cheques, electronic transfers, banking, etc. Their exchange rates were locked at fixed rates against each other, effectively making them mere non-decimal subdivisions of the euro. The notes and coins for the old currencies, however, continued to be used as legal tender until new euro notes and coins were introduced on 1 January The changeover period during which the former currencies' notes and coins were exchanged for those of the euro lasted about two months, until 28 February The official date on which the national currencies ceased to be legal tender varied from Member State to Member State.
The earliest date was in Germany where the mark officially ceased to be legal tender on 31 December , though the exchange period lasted for two months more. Even after the old currencies ceased to be legal tender, they continued to be accepted by national central banks for periods ranging from several years to forever the latter in Austria, Germany, Ireland and Spain. The earliest coins to become non-convertible were the Portuguese escudos, which ceased to have monetary value after 31 December , although banknotes remain exchangeable until These countries comprise the "eurozone", some million people in total.
Estonia will join in 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 further. Together this direct usage of the euro outside the EU affects over 3 million people. It is also gaining increasing international usage as a trading currency, in Cuba,North Korea and Syria. There are also various currencies pegged to the euro see below. In Zimbabwe abandoned its local currency and used major currencies instead, including the euro and the United States dollar.
Use as reserve currency Since its introduction, the euro has been the second most widely held international reserve currency after the U. The share of the euro as a reserve currency has increased from The euro inherited and built on the status of the second most important reserve currency from the German mark. The euro remains underweight as a reserve currency in advanced economies while overweight in emerging and developing economies: The possibility of the euro becoming the first international reserve currency is now widely debated among economists.
Former Federal Reserve Chairman Alan Greenspan gave his opinion in September that it is "absolutely conceivable that the euro will replace the dollar as reserve currency, or will be traded as an equally important reserve currency. Currencies pegged to the euro Outside the eurozone, a total of 23 countries and territories that do not belong to the EU have currencies that are directly pegged to the euro including 14 countries in mainland Africa CFA franc and Moroccan dirham , two African island countries Comorian franc and Cape Verdean escudo , three French Pacific territories CFP franc and another Balkan country, Bosnia and Herzegovina Bosnia and Herzegovina convertible mark.
On 28 July , Sao Tome and Principe signed an agreement with Portugal which will eventually tie its currency to the euro. With the exception of Bosnia which pegged its currency against the German mark and Cape Verde formerly pegged to the Portuguese escudo all of these non-EU countries had a currency peg to the French Franc before pegging their currencies to the euro.
Pegging a country's currency to a major currency is regarded as a safety measure, especially for currencies of areas with weak economies, as the euro is seen as a stable currency, prevents runaway inflation and encourages foreign investment due to its stability.
Within the EU several currencies have a peg to the euro, in most instances as a precondition to joining the eurozone.
In total, over million people in Africa use a currency pegged to the euro, 25 million people outside the eurozone in Europe and another , people on Pacific islands. The ECB will halve bond-buys to 30 billion euros from January However, it left the door open to extending the QE program beyond September, and this hurt the euro. A weaker euro makes exports more attractive and pushes imported inflation higher. Draghi is happy with growth but worried about inflation.
The political uncertainty in Germany is becoming an issue after inconclusive elections in September. A fresh round of elections joins the crisis in Catalonia and the political instability in Italy. The Federal Reserve has maintained its plan for three rates hikes in despite lower US inflation.
PMI data stands out…. By Yohay Elam on Oct 2,
If adopted by all of the developed nations, it would have the advantage of eliminating all incentives for substitution between financial assets and between financial centers since all transactions would universally be taxed at the identical flat tax rate. This guy is making a fool of you.
Currencies pegged to the euro Outside the eurozone, a total of 23 countries and territories that do not belong to the EU have currencies that are directly pegged to the euro including 14 countries in mainland Africa CFA franc and Moroccan dirham , two African island countries Comorian franc and Cape Verdean escudo , three French Pacific territories CFP franc and another Balkan country, Bosnia and Herzegovina Bosnia and Herzegovina convertible mark.