Let’s say that either the USA decided to switch its currency to the Euro, or that the Obama administration declared that the USD would always match the Euro one for one. Now, both of these are unlikely, but what would happen? Would the global economy bring the USA up, or would the USA bring the world down? What are the pros and cons of this happening?
I’m not sure this would even come down to a discussion about the change in exchange rate was beneficial or not.
Instead, I think the market would be so freaked out by such a drastic and unprecedented move that everything would come crashing down and everyone would lose big time.
Without taking both currencies off the market, it really couldn’t be done. And doing that would be… bad.
Not both. Many governments have pegged their currency to another (strong and stable) one. You can peg the dollar to the euro, if you so wish.
yeah sure you could peg it at something close to the current actual trading rate 1 us = 1.25 euro. but trying to peg it 1:1 when the euro buys more in real terms than the dollar is not possible.
the US would go bankrupt trying to keep its own dollar artificially at the same level.
I think the OP is really asking what would happen if the dollar was pegged to the Euro, rather than asking what would happen if it was artificially deflated to match 1:1.
One side effect: the Federal Reserve would be forced to follow EU monetary policy, which would sometimes be a big deal and sometimes not. If the EU tightened interest rates to arrest growth and inflation, the US would have to do the same; that’s fine if both economies are trending the same way, but very bad if the EU was experiencing strong growth and the US economy was not.
It would also cause big balance-of-trade issues; Suppose the EU has a much lower trade deficit with China than we do. Thus, the euro remains strong against the yuan (renminbi). Since the dollar cannot go lower against the yuan to compensate for the deficit, all that stuff we buy from China becomes more and more expensive.
While this would have certain benefits- make outsourcing US jobs less attractive, for example- it would also have serious implications for any industry relying on foreign-sourced goods/services/raw materials, etc.
ETA: I might have the example above backwards. Haven’t had my coffee yet.
So, to summarise, exactly the same problems that affect countries who have already joined the Euro 