Iceland, Poland, Denmark look to Euro; out of frying pan and into fire

The NYTimes reports Iceland, Poland and even Denmark may be more likely to embrace the Euro due to substantial fluctuations in their own currencies. The article’s author states,

The huge downturn in financial markets have led to a “flight to quality,” the term investors use to describe a sudden shift of money out of potentially risky assets into the safest possible assets. The euro and investments denominated in euros have benefited from the shift.

The Euro may represent quality but only if you’re comparing a sinking ship to a ship that will sink in the future. All paper money, including the euro, is not quality money because the supply of the Euro is not relatively fixed. The European central bank can create more Euros at any time. Imagine if you invested in gold and someone told you one gold company has figured out how to create gold. You would be a lot less likely to buy gold as a store of wealth. You might still buy gold jewelry, but not gold coins. The European central bank can create euros, and every time more euros are created, the value of all other euros will go down.

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