forex-forex>I'm surprised that Germany would go with the EUR over their own currency.
Consider General Motors building cars in Detroit and selling them in Chicago. Imagine if Illinois & Michigan each had their own separate currencies. If so, then for each car that GM sold in Chicago, they'd need to 'repatriate' the earnings through ForEx conversions. Next, imagine that a parts supplier for GM is based in Gary, Indiana, and that those shipments need to be paid for in Indiana currency. Further suppose that GM has a sub-assembly plant in Ohio whose UAW workers need to be paid in the currency of that country.
Now, take the above absurd hypothetical example and switch the names of U.S. States for European countries, and Daimler-Benz for GM. Start to get the picture?
Paying the spreads on each conversion and the bureaucracy of arranging each conversion are not the worst costs. Even worse is trying to handle product-cost-accounting when different conversions happen at different rates at different times.
If you've ever had to file a multi-country expense report for extended business trips you get some sense of the hassles created by shifting conversion rates. ugh!!!
Prior to Y2K there were about 3 Trillion dollars a day in ForEx volume, with about 90% involving USD, and the builk of the activity transiting through London, with half the volume transacted through Reuters. I forget, but I seem to recall the Euro switchover was 2000. (f___ing stupid time to pick for conversion to coincide with Y2K prep!) Anyways, a year or two after Y2K, the daily ForEx trading volume had dropped to about 2.4 Trillion a day.
