Thursday, March 28, 2013

Cyprus Should Exit the Euro Zone and 1 USD Should be Worth 2 Euros

What credibility do the Euro currency and the Euro zone have anymore?

Cyprus opened up its banks today and has enforced severe restrictions on cash withdrawals and transactions. As a matter of reality, and as it has been proven during the past several weeks, the citizens of Cyprus do not have total ownership of their own money held at banks.

Mind you that this is supposed to be the exact same currency as the one used in France and Germany.

We can clearly see that we are dealing with several flavors of Euros and some are seen as better than other. Currencies are fiat and Euro has very little fiat, that is for sure.

If you have Euro deposits at banks in -say- Germany you have a currency with more freedoms (withdrawal, use, leverage, etc.) than if you hold it in Cyprus, or even Spain (by association).

It is true that in Cyprus a total banking collapse has been averted but the price of this stabilization will linger in people's minds forever and this crisis has cracked open the door for the Euro to stop being a by-design multinational currency.

Euro is surely not sustainable under the current set up unless all vulnerable countries are expelled from its 'spell'. Currencies are not a magic tool to become wealthy and productive and the fact that a country gets to use the Euro does not mean anything more than a sanctification of a political will.

When the political tools fail to be backed up by economic performance the currency becomes an 'after thought' and an appendix. You can lose the currency in use and the country resets to a new orbit around the Euro. Why is exiting the Euro zone so difficult to accomplish?

Considering the challenges the Euro faces I think that the US dollar is totally undervalued.

1 USD should buy 2 Euros and I cannot understand how it is possible that today 1 Euro buys 1.28 USD. Can anybody explain this to me?

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