Currency-spread induced shifting of capital

Investors noticeably withdraw money from a weak currency and park it in a strong currency. – Before entry into the European Monetary Union, periods of USD weakness were regularly associated with shifts in favor of the DEM. The resulting appreciation of the DEM caused considerable tensions within the European Monetary System, sometimes resulting in a significant loss of price competitiveness for the German economy, especially in relation to its European partner countries. With the introduction of the EUR, – the adjustment burdens for investment shifts from USD to EUR are spread over several countries and – intra-European exchange rate fluctuations have been eliminated. This is of great advantage to the heavily export-dependent German economy. – See Exchange rate effect, real.

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