COMMENTARY
SPECIALS
CHAT
ARCHIVES

The Rediff Business Interview / A V Rajwade

'South Asian nations must also go in for a single currency like Euro'

As the Euro made its debut in the international money markets on Monday, reports poured in about the currency's none-too-impressive show. All the talk of the Euro posing a threat to the US dollar seemed far-fetched for once. As the world's markets took a break to usher in the New Year, India's money market functioned on January 1 and made news as the world's first deal in Euro was struck between State Bank of India and ABN-Amro Bank.

Syed Firdaus Ashraf met with A V Rajwade of Bombay-based Forex and Treasury Management Consultants to find out more about the world's newest currency.

It is said that banks and exporters in India are still not completely ready to deal in Euro.

No, I don't think that is true. The banking transactions are already taking place in Euro and exporters too are transacting in Euro. In the case of exporters, they don't have to effect many changes in their routine business.

They just have to change their business denomination to Euro rather than the local currency of the country. For example, if an exporter has made an invoice billing of say Deutsche mark 5,113 and one mark is equal to .5113 Euro. So you will get a return in those many Euros. Also, one more important thing is that the export transaction never takes place in cash and that is true for all the 11 countries of Europe. So, it is wrong to say that the banks and exporters are not prepared for the conversion to Euro.

How will the Euro work in India?

All the erstwhile currencies of the 11 European countries have been converted to the denominations of Euro. For example 0.25 dollar (quarter dollar) is not a separate currency from the dollar. In the same way, 0.5133 currency of Euro is no different from the Euro money. This is the simplest way to look at it. So, it is a very simple procedure for any country to follow. India is no exception.

You mean there is no scope for confusion?

No, not at all. The norms have been set up in a very proper manner from a very long time and every country knows about this change.

When the dollar replaced gold as the standard currency, wasn't there any confusion?

Not at all. The dollar was convertible into a fixed gold price. And then the conversion of the gold took place. So there was no problem.

The rupee today ended at Rs 50.20 vs the Euro. What is your reaction to this?

Like for any other currency, the exchange rate with the Euro will be derived through the relation a currency has with the dollar. So, it will be a multiplication of dollar-rupee by dollar-Euro. Previously, it used to be the multiplication of dollar-rupee with dollar-mark or any other country's currency.

A lot has been said about the Euro emerging as a challenger to dollar. Do you think there is substance in that argument?

In the short term there is no threat to the dollar's status as it is an internationally accepted currency. All the commodities markets in the world are dollar-based. Be it copper, oil or anything. All of them are priced in dollars. That's one of the reasons why the dollar has the status it has at present. So, I don't think there is a threat to dollar in near future.

It's all hype, is it?

Yes. But ten years down the line, if people want to shift to the Euro, only then there can be a problem for dollar.

Could you offer us an overview of why the 11 countries decided to go in for a single currency?

(Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. However, Great Britain, Denmark and Sweden have decided against joining the Euro league for now).

I think this plan was there since 1951 because of both political and economic compulsions. After the Second World War, these countries felt that the only way to get over the national passion and chauvinism is to have greater economic interdependence.

So, in 1951, they formed the European Coal and Steel Community. Then they had the European Community. And in 1986, they decided that if you have to have a single market, then you must have a common currency. So politicians realised that they will have to give up the sovereign concept of their countries and opt for the better interests of all.

If you see the history of Europe, they have been quarrelling against each other since the days of Napoleon. Another problem was that the consumer used to suffer because of the conversion of the local currencies within Europe. For trade alone it used to be $ 13 billion a year and for tourism too it was a huge amount. So there was a need for change.

Is that the only reason?

Another problem was that there was lot of disparity in different prices of the same commodity in Europe. The minimum difference used to be 20-30 per cent. After the Euro comes into full effect, the prices will level, be it of computers, cars or any other product. So the consumer will finally benefit.

There were some apprehensions in France.

Naturally, the fear is that people don't want to take a risk on unknown things; they prefer to rest content with known risks. Human beings are sentimental, they are sentimental for their country and that is why they don't want to take a risk.

This is true of Britain -- they still think that they are the 51st state of USA rather than being part of Europe. They still have the hangover of the empire. But I expect them to join by 2002.

What about Greece?

No, it is not taken in because its economy is weaker than other European economies at this juncture.

Do you think the Euro will make a difference to the so-called ongoing recession?

There will be some benefit to the European economy. Europe accounts for 19 per cent of the world's gross domestic product. For the first time, they have come together in the context of a single currency, so their immediate purpose is to give a boost to their economy.

What does the advent of the Euro mean to India?

Look at it this way. There (in Europe), countries are coming together. Here, we have inter-city import duties (octroi). The system is corrupt and inefficient. The point is the customer will benefit from greater transparent prices that the Euro promises. So we need to look into such matters and learn. From the political angle, these countries which fought bitter wars have come together. So, the South Asian nations would do well to consider this and aim for a common market 50 years down the line.

Do you think Asian nations can come together like the European nations?

India has had three wars against Pakistan in the last 50 years. Millions of people have been killed. Yet, the borders are at the same place they were 50 years ago. So we should give up excessive jingoism.

Do you agree that the Third World will benefit from the Euro?

I think there will be a few minor benefits.

Interviews

Business news