Take one: November 3, 2000, the euro/dollar ratio is 0.8660—an all-time record low for the euro. Take two: July 18, 2008, the euro/dollar ratio is 1.6038—an all-time record high for the euro. From July 2008 to present (November 30, 2008), the American dollar has come back from a dollar/euro ratio of 0.6325 to 0.7880. Are we going to see the dollar strengthening to parity? Can we predict the course of the dollar or the euro in the near-term? Will the euro take over the dollar as the global reserve currency? The issue, to say the least, is very complex. In game theory terms, the Foreign Exchange (Forex) market may be viewed as a multi-stage multi-player game.

From a mathematical modeling standpoint, it can be considered as a time-dependent, multiple equations and multivariate model. Either way, the Forex market is nearly impossible to predict. Having said that, it is the purpose of this article to discuss and possibly outline the near future paths for the dollar-euro ratio. It is done by going back to the basics of national and international monetary policy, while discussing the effects of the Information Technology and Communications (ITC) revolution and globalization on the US and the Eurozone economies.

Before delving into the aspects of international finance and their impact on national interest rates, a few observations about the significant changes that have occurred globally in the past 20 years are in order here. The US economy has greatly benefitted from the ITC revolution that has taken place since the early 1980s. The appearance of the personal computer (PC), the laptop, the cellular phone, the USA 1984 Antitrust Enforcement Dismantling Bell System, the USA 1996 FCC Telecom Act, the Emergence of the Internet and Intranets (Local Area Networks, LAN) as well as digital storage has tremendously increased global productivity and that of the US especially.

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