Exchange Rate Policy for the Euro: Theory, Strategic Issues and Policy Options

Abstract

With the start of the Euro and the European Central Bank (ECB) there is a new monetary regime within the EU. In a global perspective the introduction of the Euro means that the number of major currencies is falling sharply; the global monetary system looks more oligopolistic than before, but it also looks more symmetrical in the sense that the US and Euroland are economic heavyweights of similar magnitude. In principle the switch to a reduced number of currencies could mean economic benefits not only because transaction costs are saved but also because global crisis management might become easier with a smaller number of actors and more equal heavyweights (Tab. A6). At the same time currency competition will intensify which should stimulate financial innovations possibly undermining financial market regulations and stability, respectively.