The Impact of the Euro on the International Stability: A Chinese Perspective

Abstract

With the successful launch of the euro, most of the observers of the economic world see the euro as a stabilizer in the international economic system. The fact that the Asian financial crisis struck most of the Asian countries causing a great chaos in international economic activities while the euro zone remained insulated and relatively stable convinced more people that the euro is a stabilizer. It can help maintaining international financial stability and pushing forward the reform of the international monetary system. A few scholars also pointed out the possibility of fluctuation once the euro is introduced.¹ Since the introduction of the euro on January 1, 1999, the exchange rate relative to the US dollar has been floating in a narrow span and the international financial markets, especially European capital markets, maintained a relative stability. Instead of shifting huge funds into euro assets, international investors seemed very cool about the euro event and most of the asset managers have kept watching rather than shifting their portfolios. Until now erratic fluctuations have not happened in the way some observers predicted. This again seems to Prove the positive impact of the euro.

Notes

1. For example, Professor C.F. Begsten anticipated that after the introduction of the euro, about US $ 500–1000 billions of funds will flow out of US into Europe, causing instability in international financial markets (Begsten, 1997).