This is not surprising, for even though the euros (and dollars for that matter) are happily accepted in Swiss shops, cafés, and hotels, the exchange rate is usually unattractive and the change is given in Swiss francs. Shopkeepers and restaurant owners are not in the business of providing financial services, and foreign tourists are still better off changing their euros at banks or using their credit cards. True, Swiss firms use the euro extensively, some do much of their billing in the European currency, and some have even switched their accounting to euros. Some natural hedging takes place as well, although it is not clear how efficient this is. It is noteworthy, however, that some of the largest firms do much of their billing and  2  BIS Review 35/2004  their accounting in dollars, while others quite happily continue to use the Swiss franc. The fact that “euroization” has not taken place should not really surprise us. There have been other examples of small independent currencies surviving in the neighbourhood of much larger monetary zones. The example of the Canadian dollar comes to mind. The loonie has been floating for the past several decades, and it has served Canada rather well. More generally, there is nothing to be gained in having more than one currency for transaction purposes. Much of the double coincidence of wants gets lost if several currencies circulate simultaneously. “Dollarization” only occurs in those countries where hyperinflation threatens.
There were several episodes when the internal stability of the dollar was threatened as well, with U.S. inflation rates in the double digits. The flight into more stable currencies put considerable pressure on these. BIS Review 35/2004  3  Today, the arrival of the euro has changed the landscape in some important respects. First, as the new kid on the block, the euro commands attention and respect. In economic size, the eurozone nearly rivals the United States. There is now an obvious alternative to the dollar as an instrument of portfolio diversification. If investors have doubts about the dollar, there is no longer any need to rush into the Swiss franc, the euro will do just fine. Second, the eurozone, although not quite to the extent of the United States, is a largely closed economy. Movements in the euro are far less devastating than movements of similar magnitude in the Swiss franc or in the German mark. The euro is much more capable than any other currency to take on the role of shock absorber against the U.S. dollar. The eurozone, in some ways, is the large closed economy that the world needed as the counterweight to the U.S. economy. All small open economies, like Switzerland, should benefit from this new international monetary order. There is a third reason why the arrival of the euro has changed the landscape and should fundamentally prove beneficial to the stability of the international monetary system, and that is competition.