How Does EMU Affect the Dollar and the Yen as International Reserve and Investment Currencies?

  • Michael Frenkel
  • Jens Søndergaard
Chapter

Abstract

European Economic and Monetary Union (EMU) and the introduction of the euro offer central banks and international investors, for the first time after World War II, a real alternative to the US dollar as an international reserve and investment currency. This is the case because Euroland represents a currency area with a GDP nearly as high as that of the United States and a share in world trade exceeding the share of the United States. Since the size of the underlying economy and the volume of global trade flows are important factors determining whether or not a currency develops into an international currency, EMU can eventually lead to a role of the euro exceeding by far the combined role of the currencies the euro replaces.

Keywords

Central Bank European Central Bank International Bond International Reserve Reserve Currency 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Alogoskoufis, G. and R. Portes (1997), “The Euro, the Dollar, and the International Monetary System,” paper presented at the IMF conference on EMU and the International Monetary System’, Washington D.C., March 17–18.Google Scholar
  2. Bank for International Settlements (BIS) (1999), International Banking and Financial Market Developments. Basle: Bank for International Settlements.Google Scholar
  3. Bergsten, C. F. (1997), “The Impact of the Euro on Exchange Rates and International Policy Cooperation.” paper presented at the IMF conference on EMU and the International Monetary System, Washington D.C., March 17–18.Google Scholar
  4. Dooley, M., Lizondo, J. S. and D. Mathieson (1989), “The Currency Composition of Foreign Exchange Reserves,” IMF Staff Paper, 36: 385–434.CrossRefGoogle Scholar
  5. European Commission (1990), “One Market, One Money,” European Economy no. 44. (1999), Quarterly Note on the Euro-Denominated Bond Market, October-December. Frenkel, M., and J. Sendergaard (1997), “The Effects of European Monetary Union on theGoogle Scholar
  6. Dollar and the Yen as International Reserve and Investment Currencies,“ International Journal of Business,3:15–32.Google Scholar
  7. Gros, D. and N. Thygesen (1992), European Monetary Integration: From the European Monetary System towards Monetary Union. London: Longman.Google Scholar
  8. Heller, H. R. and M. Knight (1978), Reserve-Currency Preferences of Central Banks. Essays in International Finance no. 131, Princeton: Princeton University.Google Scholar
  9. Heller, H. R. and Mohsin S. Khan (1978), “The Demand for International Reserves Under Fixed and Floating Exchange Rates,” IMF Staff Papers, 25: 623–49.CrossRefGoogle Scholar
  10. International Monetary Fund (IMF) (1999a), International Financial Statistics. Washington: International Monetary Fund.Google Scholar
  11. International Monetary Fund (IMF) (1999b), Annual Report. Washington: International Monetary Fund.Google Scholar
  12. International Monetary Fund (IMF) (1999c), Direction of Trade Statistics. Washington: International Monetary Fund.Google Scholar
  13. Johnson, K. H. (1994), “International Dimension of European Monetary Union: Implications for the Dollar,” Board of Governors of the Federal Reserve System, International Finance Discussion Papers no. 469.Google Scholar
  14. Lizondo, J. S. and D. J. Mathieson (1987), “The Stability of the Demand for International Reserves,” Journal of Money and Finance, 6: 251–82.CrossRefGoogle Scholar
  15. Leahy, M. P. (1994), “The Dollar as an Official Reserve Currency under EMU,” Board of Governors of the Federal Reserve System, International Finance Discussion Papers no. 474.Google Scholar
  16. Masson, P. R., and B. G. Turtelboom (1997), “Characteristics of the Euro, the Demand for Reserves, and Policy Coordination Under EMU,” paper presented for the IMF conference on `EMU and the International Monetary System’, Washington D.C., March 17–18, 1997.Google Scholar
  17. McCauley, R. N. (1997), The Euro and the Dollar. Essays in International Finance no. 205, Princeton: Princeton University.Google Scholar
  18. McCauley, R. N. and W. R. White (1997), “The Euro and European Financial Markets,” in EMU and the International Monetary System, P. R. Masson, T. H. Krueger, and B. G. Turtelboom, eds. Washington: International Monetary Fund, pp. 324–88.Google Scholar
  19. Prati, A. and G. J. Schinasi (1997), “European Monetary Union and International Capital Markets: Structural Implications and Risks,” International Monetary Fund Working Paper no. 97 /62.Google Scholar
  20. Ramaswamy, S. (1999), “Reserve Currency Allocation: An Alternative Methodology,” Bank for International Settlements Working Paper no. 72.Google Scholar
  21. Tavlas, G. (1991), On the International Use of Currencies: the Case of the Deutsche mark. Essays in International Finance no. 181, Princeton: Princeton University.Google Scholar

Copyright information

© Springer Science+Business Media New York 2001

Authors and Affiliations

  • Michael Frenkel
    • 1
    • 2
  • Jens Søndergaard
    • 1
    • 2
  1. 1.WHUKoblenzGermany
  2. 2.Georgetown UniversityUSA

Personalised recommendations