Give The Euro Greater Currency.

• Author: HUFNER, MARTIN
• Position: Euro to gain credibility by more circulation abroad

The euro won't gain credibility until bills and coins circulate widely outside Euroland.

Last January, the leaders of East Timor, or, just released from Indonesian rule, made a decision that had a significant impact on the world of global finance. They chose to adopt the U.S. dollar as their currency, rather than the euro. As a former Portuguese colony, East Timor was leaning toward the euro--the successor to the Portuguese currency, the escudo. But the dollar ultimately proved more attractive.

Europeans appeared indifferent to East Timor's decision. That is a mistake. Actively encouraging "euroization"--the adoption of the currency by non-European countries--ought to be a policymaking priority on the continent. Euroization will play an important role in cementing the global importance of Europe's new currency.

As everybody readily acknowledges, establishing credibility is the great challenge for the European Central Bank (ECB). The ECB has devoted much thought to the question of how to make the euro more credible to traders and suspicious private investors. Up until now, the benchmark for measuring the euro's strength has been the exchange rate of the euro relative to the dollar and the yen. That measure has indicated that the euro was in "trouble."

But, in my view, the degree of euroization in countries outside the EU would be a much better measure of the euro's overall acceptance. We will know that the euro has widespread credibility if people living outside the euro-zone voluntarily adopt it as their currency. Such a vote of confidence would be the clearest sign that the ECB is succeeding in creating a secure monetary standard.

A surprising number of countries today are searching for monetary stability outside their borders. Go to Latin America. Maybe you'll spend a few pesos and bolivars. Or maybe you'll just spend U.S. dollars, the dependable currency from way "north of the border." More and more Latin Americans are using the dollar in place of their own national currencies, sometimes with the support of their monetary authorities. What is going on? It is a movement toward accepting the obvious--or reducing risk. The obvious is that the Latin American economies are closely tied to the United States, and it is simpler to do business on the basis of a single currency. And in Latin America, independent monetary institutions have proven all too often to be prone to inflation. So why not simply use the more trustworthy cash printed up...