International currency trading and international business was simplified with the introduction of the euro. Doing business abroad means buying and selling foreign currency in exchange for goods and services. The reduction of several European countries' currencies into one caused transaction costs to fall, and lowered currency exchange risk.
The euro was created in 1999 to consolidate many European countries' currencies into one currency. Before 1999, an American would have to exchange dollars for deutschemarks, francs, lira, and more to conduct business with the respective countries. The transaction costs for these exchanges amounted to millions of dollars a year for the middlemen.Additionally, giant corporations were exposed to a significant amount of currency exchange risk. They had to worry about each country's relationship with the dollar. Companies combated this risk through hedging techniques. The costs associated with hedging are high and were passed down to consumers in the form of higher prices.The introduction of the euro was good for both big business and consumers. As with most transitions, some parties are left worse off. In this case, it's the leading economies of Europe. Effectively, the euro turned the European economy into the economy of the United States. The growing economies, like Germany, are dragged down by weaker economies, such as France. This is equivalent to massive layoffs in New York putting strain on the health of the entire American economy. Indeed, this is one of the reasons Great Britain chose to sit on the sidelines to watch the unfolding of the euro before hopping on board.
