The Potential Implications of Euro on Developing Economies With A Particular Reference To Jordan: An Exploratory Study

It is expected that Euro will have considerable opportunities and risks at the international, regional and national levels. Euro may eliminate the foreign exchange risk, reduce the requirement for international reserves and the need or hedging, and may eliminate the cost of the currency transfer due to currency unification. The Euro has the potential of being a major international currency that would compete with the Dollar as a reserve. In Jordan, it is expected that the demand on Euro will increase, more commercial and service ties with the EU will be strengthened at lower cost than other currency regions due to low inflation in the Euro Zone. Jordan's export will improve with the liberalization of imports from Europe. On the microeconomic level, the elimination of exchange rate uncertainty and transaction costs within the EU will create efficiency gains in the transactions of the Jordanian firms with the EU. On the macroeconomic level, the elimination of intra -EU exchange rates and the discipline in monetary and fiscal policies will lower the risk built in interest rates and lead to higher investment and output both in the EU and Jordan. The EU demand for imports from non-EU countries such as Jordan will be boosted but this depends on the share of the EU in other countrys exports. The introduction of the Euro and the creation of a single EU market have led to external liberalization towards non-EU countries and the market access has been made easier which will benefit the Jordanian exports. It is expected for a country like Jordan to use more Euro in its foreign trade as Euro is relatively a stable currency with low inflation. Given that the EU will be the largest single trade block in the world, some Arab countries with close economic ties with the EU wish to link their currencies to the Euro through some sort of exchange rate peg. but this might not happen to Jordan which has strong political and economic ties with the US, but in the long-run there is a possibility that Jordan will tie the Dinar with a basket of currencies where Euro plays a major role. Concerning the Euro equity and bond markets, these markets will constitute a diversification of investment opportunities for the Jordanian investors as the Euro government securities market will be larger than that of Japan and the US.