Since its birth on January 1, 1999, the euro has gone through 21 spring and autumn, which is the most significant achievement of European monetary reform since the Roman Empire. The euro has not only perfected the European single market and made trade between eurozone countries more convenient, but has also become an important part of the EU integration process.
In fact, many people may not know that there is a "sleeping" wealth in the eurozone, and its scale is beyond people's imagination.
The birth of the euro
"One country, one currency" is a common law in ancient and modern China and abroad. Before the birth of the euro, various European countries issued their own sovereign currencies, and the currencies were "crowded". However, the diversity of currencies is not conducive to economic and trade and people-to-people exchanges between European countries. At the same time, in terms of monetary policy, countries are fighting their own battles, and the effects of monetary policies such as interest rates, reserve requirement ratios, and discount rates often cancel each other out, making it difficult to achieve practical results.
In terms of resisting external risks, due to the lack of strength of each country itself, it is difficult to resist the attack and speculation from international floating funds. In the 1992 European exchange-rate mechanism crisis, for example, the United Kingdom and Italy lost at least $80 billion in foreign exchange reserves. Clearly, none of these huge losses and their risks can be resolved or avoided by any european country and its sovereign currency.
In the 20th century, Europe ushered in a turning point in its destiny, and its GDP was surpassed by the United States and the Soviet Union. Throughout history, the main battlefields of the two world wars have been in Europe. The First World War deprived Europe of its position as the center of the world economy, relying on the United States to pay off war reparations and war debts; the Second World War divided Europe in two.
In the context of division, Western Europe took the lead in carrying the banner of European unity. The countries of Western Europe have realized that the only way to restore the glory and dreams of the past is to rely on the unity and self-reliance of all countries. In 1946 British Prime Minister Winston Churchill proposed the creation of the "United States of Europe", and in 1959 French President Charles de Gaulle proposed the creation of a "Europe from the Atlantic to the Urals". As a result, Europe soon embarked on the road of joint self-reliance, from economic and trade cooperation to monetary cooperation.
In 1951, the European Coal and Steel Community was established; in 1957, the European Economic Community and the European Atomic Energy Community were established; in 1965, the three institutions were merged into the European Community; in 1993, the Treaty on European Union entered into force, deciding to establish a political, economic and monetary union and changing the European Community to the European Union; and from 1 January 1999, a single currency, the euro, was introduced. The euro makes free trade between countries more convenient, while enhancing the ability of European countries to resist the risk resistance of international floating capital speculation. The euro gradually became one of the most important currencies in the world.
However, from the birth of the euro to the present, there are still many doubts. In 2019, a report released by the Bank of France, the Bank of France, revealed the dilemmas currently facing the eurozone.
Why "Hide the Euro Under the Mattress"
In 2019, the Bank of France released a report by the Bank of France that according to the ECB estimates, the euro "hidden under the mattress" in the euro area is now as high as about 600 billion euros, accounting for half of the total euro cash in circulation in the world.
The so-called "hidden under the mattress" of the euro is a figurative term that refers to euro banknotes or coins that have been printed or minted, are in circulation in a statistical sense, but are not actually used for various expenses. This money is stored in the home by people, neither in bank accounts nor willing to spend it.
The euro "hidden under the mattress" originated from a movie called "Million Euros in the Mattress" The film tells the story of an old-fashioned old lady. Because of her frugal life and reluctance to spend money, she hid nearly a million euros in her old mattress, which was thrown away by the unsuspecting children when they helped the old lady tidy up the room. After learning the truth, the whole family began a vigorous operation to find a mattress.
This is a film about family affection. However, the euro, which is "hidden under the mattress", vividly reflects the social phenomenon faced by European society: the euro is increasingly changing from a "means of payment" for the purchase of goods and services to being used as a "means of storage" of gold and silver by residents. According to the European Central Bank, during periods of economic or political turmoil, such as the international financial crisis in 2008 and the Greek debt crisis in the eurozone in 2015, eurozone residents will store their euros.
According to the ECB's 2019 statistics, as of the end of 2018, the total value of the euro cash in circulation worldwide reached 1.26 trillion euros. There are three main channels for the demand for these cash: one is the commercial transactions delivered with cash in the euro area, and the euro cash currently absorbed accounts for 19%-24% of the total cash in circulation; the second is the demand for euro cash outside the euro area, such as foreign central banks and commercial banks will buy euros to meet the needs of customers for foreign exchange, and the proportion of euro cash absorbed by this channel is 24%-36%; the third is held by residents and stored at home, and the proportion of euro cash absorbed by this part is 40%-57%.
There are so many euros "hidden under the mattress", in addition to reflecting people's trust in the euro as a basis for surviving the economic winter, to a certain extent, it also reflects the current weak economic situation in the euro area and people's lack of consumer confidence.
So far this year, although the euro area has performed well in terms of employment, the outlook for economic growth in the euro area is worrying against the backdrop of weak international trade, Brexit, shrinking manufacturing in the euro area, and the new crown epidemic. In its latest economic outlook report, the Organisation for Economic Co-operation and Development (OECD) lowered its growth forecast for the euro area to 1.1 percent and 1.0 percent this year and next, respectively. Since June 2019, the Eurozone Consumer Confidence Index has been declining.
Of course, in order to stimulate the eurozone economy and let everyone take the money out of their hands to consume, the European Central Bank has recently offered a new round of ultra-loose monetary policy, and even reduced interest rates to negative numbers, but its helplessness is clearly discernible.
When the vicious circle breaks
The negative interest rate policy in Europe is because in a low interest rate environment, the interest earned by bank savings will be reduced, people will take money out for consumption and expenditure, and the increase in household consumption will have a certain stimulating effect on the growth of a country's economy. However, this is not the case.
In a low-interest-rate environment, long-term low interest rates may induce investors to seek high yields and take unnecessary risks. At the same time, global stock markets and risk asset prices have risen sharply, which means that the return on overvalued assets will decline in the future. And for some pension funds, the increase in fixed income of pensions is more difficult. It has been calculated that for every percentage point drop in interest rates, the net assets of pension funds will shrink by about 10%. People are worried that the salary they receive after retirement will not be able to protect their living needs, and they are worried that the return on investment will decline in the future, and they have begun to gradually reduce their daily consumption and investment, and choose to store more currency that should be used for consumption circulation or investment appreciation in their homes.
According to the Wall Street Journal, cash accounts for about 40% of the current assets of ordinary German households. This puzzled many economists because the cash had zero interest income. What's even more amazing is that there are many Germans who choose to take their money out of the bank and put it in a safe deposit box at home. Germany's largest safe maker, Burg-Waechter KG, saw a 25% increase in sales in 6 months, mainly due to people hoarding cash at home.
In addition to Europe, Japan has encountered a similar situation.
The Japanese government and the central bank have implemented many different policies and measures to encourage Japanese people to save less and increase consumption, but so far, the effect has not been significant.
Bank of Japan Governor Toshihiko Kuroda once said in an interview: "The Japanese have lived in a deflationary environment for a long time, and the Japanese have become accustomed to falling prices." That's why it's so hard to create inflation in Japan. What Kuroda means is that if expectations of future prices are generally negative, it will be difficult for central banks to stimulate individuals and households to take out their savings for consumption, even if the central bank cuts interest rates below zero. Because they all expect that the price of the same product will be lower in time, so they prefer to put their money in the bank and wait patiently.
The best solution to the current dilemma remains unknown.