The euro is set for a further decline after hitting a 20-year low against the US dollar as the European exit from Russian energy will increase the cost of dollar-priced oil and gas imports, financier Charles Gave told Sputnik.
“We’ll now abandon Russian deliveries and pay our energy in dollars to Qatar, the US, or Venezuela… It gives the dollar a definite advantage. A much larger proportion of transactions will be made in dollars, reinforcing its dominant use as foreign exchange reserve,” he said.
The value of the single currency used by the 19-nation eurozone tumbled to parity with the US dollar on Wednesday for the first time since 2002. Gave said EU sanctions against Russia were hitting Europe very hard, nipping its post-pandemic recovery in the bud.
Prior to the crisis in Ukraine, Europe would pay for Russian energy imports in rubles that were then re-invested, mainly in euros. The EU’s drive for independence from Russian oil and gas will further strengthen the US dollar, which is still the world’s dominant trade and reserve currency.
The dollar could see its share in global foreign-exchange reserves exceed 65 per cent while the euro would slip below 20 per cent, Gave added. It would also mean higher inflation for the eurozone, higher energy costs, and pricier imports.
Read: European Central Bank faces pressure from record inflation
“What we see happening is not a rise in prices, but a fall of the money value in the hands of the European citizens. Europe has quadrupled the money supply in 10 years. We have been printing money at high speed, this is a huge vector of inflation, on top of the other reasons,” Gave explained.
The European Central Bank has not been decisive enough in tackling the galloping inflation, the economist said. Consumer prices across the eurozone added a record 8.6 per cent in June. The highest inflation in the EU is in the Baltic states, where prices rose 22 per cent. Germany, the EU’s economic powerhouse, saw an 8.2 per cent inflation rate last month.
A weaker euro gives European exports a price edge abroad, increasing the competitiveness of national products, and attracts foreign tourists, Gave said. The euro’s crash, however, could destabilise the eurozone, increase the debt burden on France and make Italy and Spain rethink the merits of using the common currency unit.
Source: United News of Bangladesh