Abstract
The paper’s thesis is that the US dollar, despite the inevitable erosion of market share that it will suffer at the hands of the euro, will remain the most important international currency. The transaction domain of an international currency depends on its ability to lower transaction costs relative to alternative currencies. The EMU financial markets will not be as integrated, and thus as liquid, as the US financial markets for quite some time, thus favoring the use of the dollar as a medium of exchange. Inertia and reputational considerations further favor the dollar. The future value of the exchange rate dollar-euro will depend on economic fundamentals more than on portfolio shifts. Portfolio shifts argue for an appreciation of the euro; but fundamentals can swamp the effects of portfolio shifts. Should the EMU fundamentals reflect the spirit of the Maastricht Treaty and the Growth and Stability Pact, the chances for a euro appreciation will increase. Some caution, however, is in order because the ECB is a new and untested central bank where consensus for a conservative policy may be harder to achieve than can be gleaned from a literal reading of the Maastricht Treaty.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Alogoskoufis, G. and R. Portes (1997) “The Euro, the Dollar, and the International Monetary System.” In P.R. Masson, T.H. Krueger, and B.G. Turtelboom (eds.), EMU and the International Monetary System. Washington, D.C.: The International Monetary Fund.
Bank of International Settlements (1997) 67th Annual Report. Basle, June.
Bank of International Settlements (1989, 1992, 1996) Central Bank Survey of Foreign Exchange Market Activity. Basle.
Bank of International Settlements (various issues) International Banking Activity and Financial Market Developments. Basle.
Bergsten, C.F. (1997) “The Impact of the Euro on Exchange Rates and International Policy Coordination.” In P.R. Masson, TH Krueger, and B.G. Turtelboom (eds.), EMU and the International Monetary System. Washington, D.C.: The International Monetary Fund.
Cipolla, C.M. (1956) Money, Prices, and Civilization in the Mediterranean World. Princeton, NJ.: Princeton University Press.
Dal Bosco, E. (1998) “Central Bank’s Management of Foreign Exchange Reserves.” in this volume.
Dornbush, R., C., Favero, and F. Giavazzi (1998) “Immediate Challenges for the European Central Bank.” Economic Policy 26, 15–64.
ECU Institute (1995) International Currency Competition and the Future Role of the Single European Currency. Kluwer Law International.
Eichengreen, B. and A.J. Frankel (1996) “The SDR, Reserve Currencies, and the Future of the International Monetary System.” In M. Mussa, J. Boughton, and R Isard (eds.), The Future of the SDR in Light of Changes in the International Monetary System. Washington, D.C.: International Monetary Fund.
Erb, C.B, C.R., Harvey, and T.E. Viskanta (1994) “Forecasting International Equity Correlations.” Financial Analysts Journal, 32–45
European Council, Presidency Conclusions, Dublin European Council, 13 and 14 December, 1996;
European Council, Presidency, Amsterdam European Council, 16 and 17 June, 1997.
Fratianni, M. (1998) “Maxi vs. Mini EMU: The Political Economy of Stage II.” The Columbia Journal of European Law, 4 (2), 375–393.
Fratianni, M. (1992) “Dominant and Dependent Currencies.” Palgrave Dictionary.
Frenkel, M. and J. Sondergaard (1997) “The Effects of European Monetary Union on the Dollar and the Yen as International Reserve and Investment Currencies.” Working Paper Series 97–030, Georgia Institute of Technology, School of Management, Atlanta, Georgia.
Grassman, S. (1973) Exchange Reserves and the Financial Structure of Foreign Trade. Westmead: Saxon House.
Hamada, K. (1998) `The Choice of International Monetary Regimes in a Context of Repeated Games.“ in this volume.
Kenen, R (1983) The Role of the Dollar as an International Currency. Group of Thirty Occasional Paper No. 13, New York: Group of Thirty.
Kenen, R (1998) “The Transition to EMU: Issues and Implications.” Columbia Journal of European Law, 4 (2), 359–374.
Kindleberger, C.P. (1973) The World in Depression, 1929–1939. Berkeley and Los Angeles: University of California Press.
Klein, B. (1974) “The Competitive Supply of Money.” Journal of Money, Credit and Banking, 6, 423–453.
International Monetary Fund (1997) World Economic Outlook (Oct.). Washington, D.C.: International Monetary Fund.
McCauley, R.N. (1997) “The Euro and the Dollar.” Essays in International Finance Vol. 205, International Finance Section, Princeton University.
Niehans, J. (1971) “Money and Barter in General Equilibrium with Transaction Costs.” American Economic Review, 773–783.
OECD. (1997) Economic Outlook, June.
Portes, R. and H. Rey (1998) “The Emergence of the Euro as an International Currency.” Economic Policy 26, 305–343.
Prati, A. and G.J. Schinasi (1997) “EMU and International Capital Markets: Structural Implications and Risks.” In P.R. Masson, TH Krueger, and B.G. Turtelboom (eds.), EMU and the International Monetary System. Washington, D.C.: The International Monetary Fund.
Rey, H. (1997) “International Trade and Currency Exchange.” Centre for Economic Performance, London School of Economics.
Salvatore, D. (1998) “Present International Monetary and Financial Arrangements.” in this volume.
SanPaolo (1990) “The Commercial Use of the ECU: Invoicing and Import-Export Practices.” ECU Newsletter 31, 16–30.
Savona R and A. Maccario (1998) “On the Relation between Money and Derivatives and its Application to the International Monetary Market.” in this volume.
Solnik, B., C. Boucrelle, and Y. Le Fur. (1996) `International Market Correlation and Volatility.“ Financial Analysts Journal, 17–34.
Treaty on European Union (1992) Protocol on the Statute of the European System of Central Banks and of the European Central Bank.
Woolley, J.T. (1988) Monetary Politics: The Federal Reserve and the Politics of Monetary Policy.
Wyplosz, C. (1997) “EMU: Why and How It May Work.” CEPR Discussion Paper No. 1685.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 1998 Springer Science+Business Media New York
About this chapter
Cite this chapter
Fratianni, M., Hauskrecht, A., Maccario, A. (1998). Dominant Currencies and the Future of the Euro. In: Fratianni, M., Salvatore, D., Savona, P. (eds) Ideas for the Future of the International Monetary System. Springer, Boston, MA. https://doi.org/10.1007/978-1-4757-5450-6_5
Download citation
DOI: https://doi.org/10.1007/978-1-4757-5450-6_5
Publisher Name: Springer, Boston, MA
Print ISBN: 978-1-4419-5077-2
Online ISBN: 978-1-4757-5450-6
eBook Packages: Springer Book Archive