Will The Euro Eventually Surpass The Dollar As Leading International Reserve Currency

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Will The Euro Eventually Surpass The Dollar As Leading International Reserve Currency

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Author : Menzie David Chinn
language : en
Publisher:
Release Date : 2005

Will The Euro Eventually Surpass The Dollar As Leading International Reserve Currency written by Menzie David Chinn and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with Bank reserves categories.

"Might the dollar eventually follow the precedent of the pound and cede its status as leading international reserve currency? Unlike ten years ago, there now exists a credible competitor: the euro. This paper econometrically estimates determinants of the shares of major currencies in the reserve holdings of the world's central banks. Significant factors include: size of the home country, inflation rate (or lagged depreciation trend), exchange rate variability, and size of the relevant home financial center (as measured by the turnover in its foreign exchange market). We have not found that net international debt position is an important determinant. Network externality theories would predict a tipping phenomenon. Indeed we find that the relationship between currency shares and their determinants is nonlinear (which we try to capture with a logistic function, or else with a dummy leader variable for the largest country). But changes are felt only with a long lag (we estimate a weight on the preceding year's currency share around .9). The advent of the euro interrupts the continuity of the historical data set. So we estimate parameters on pre-1999 data, and then use them to forecast the EMU era. The equation correctly predicts a (small) narrowing in the gap between the dollar and euro over the period 1999-2004. Whether the euro might in the future rival or surpass the dollar as the world's leading international reserve currency appears to depend on two things: (1) do the United Kingdom and enough other EU members join euroland so that it becomes larger than the US economy, and (2) does US macroeconomic policy eventually undermine confidence in the value of the dollar, in the form of inflation and depreciation. What we learn about functional form and parameter values helps us forecast, contingent on these two developments, how quickly the euro might rise to challenge the dollar. Under two important scenarios the remaining EU members, including the UK, join EMU by 2020 or else the recent depreciation trend of the dollar persists into the future the euro may surpass the dollar as leading international reserve currency by 2022"--NBER website

The International Role Of The Euro

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Author : Elias Papaioannou
language : en
Publisher:
Release Date : 2008

The International Role Of The Euro written by Elias Papaioannou and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Euro categories.

The Euro As A Reserve Currency

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Author : Gabriele Galati
language : en
Publisher:
Release Date : 2006

The Euro As A Reserve Currency written by Gabriele Galati and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with Bank reserves categories.

Well developed financial markets are a necessary condition for a currency to play a role as a reserve currency. The introduction of the euro greatly improved the functioning of euro financial markets. This paper investigates whether euro financial markets have developed sufficiently to facilitate the emergence of the euro as a reserve currency on par with the US dollar. We find that the liquidity and breadth of euro financial markets are fast approaching those of dollar markets, and as a result the euro is eroding some of the advantages that have historically supported the pre-eminence of the US dollar as a reserve currency. This strengthens the incentive for monetary authorities to reconsider the currency composition of their reserves. Nevertheless, the introduction of the euro has not yet resulted in a significant change in the currency composition of official reserve holdings. The US dollar has maintained its place as the dominant reserve currency, supported perhaps by the edge that dollar financial markets still have over euro markets in terms of size, credit quality and liquidity, as well as inertia in the use of international currencies.

Optimal Currency Shares In International Reserves

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Author : Elias Papaioannou
language : en
Publisher:
Release Date : 2006

Optimal Currency Shares In International Reserves written by Elias Papaioannou and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with Bank reserves categories.

Foreign exchange reserve accumulation has risen dramatically in recent years. The introduction of the euro, greater liquidity in other major currencies, and the rising current account deficits and external debt of the United States have increased the pressure on central banks to diversify away from the US dollar. A major portfolio shift would significantly affect exchange rates and the status of the dollar as the dominant international currency. We develop a dynamic mean-variance optimization framework with portfolio rebalancing costs to estimate optimal portfolio weights among the main international currencies. Making various assumptions on expected currency returns and the variance-covariance structure, we assess how the euro has changed this allocation. We then perform simulations for the optimal currency allocations of four large emerging market countries (Brazil, Russia, India and China), adding constraints that reflect a central bank's desire to hold a sizable portion of its portfolio in the currencies of its peg, its foreign debt and its international trade. Our main results are: (i) The optimizer can match the large share of the US dollar in reserves, when the dollar is the reference (risk-free) currency. (ii) The optimum portfolios show a much lower weight for the euro than is observed. This suggests that the euro may already enjoy an enhanced role as an international reserve currency ("punching above its weight"). (iii) Growth in issuance of euro-denominated securities, a rise in euro zone trade with key emerging markets, and increased use of the euro as a currency peg, would all work towards raising the optimal euro shares, with the last factor being quantitatively the most important.

Costs And Benefits Of Running An International Currency

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Author : Elias Papaioannou
language : en
Publisher:
Release Date : 2008

Costs And Benefits Of Running An International Currency written by Elias Papaioannou and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Cost effectiveness categories.

The euro has been in the global markets for ten years now. There can be little doubt that its introduction has been successful. For example, the European Central Bank has managed to keep inflation low, minimizing the fears that it may abandon the strong price stability focus of the Bundesbank. The ECB has also become established as a key stabilizing force in financial markets, in particular, during the ongoing financial turmoil. Most importantly, the euro has quickly established itself as a major international currency.

Implications Of Emu For Global Macroeconomic And Financial Stability

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Author : Björn Döhring
language : en
Publisher:
Release Date : 2008

Implications Of Emu For Global Macroeconomic And Financial Stability written by Björn Döhring and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with European Economic Community countries categories.

This paper assesses the implications of EMU for world macroeconomic and financial stability. After reviewing the predictions made by the literature, it looks at the evidence of the first ten years of EMU. In so doing, it distinguishes the effect of EMU from global factors at work since the 1980s, often referred to as zthe Great Moderationy. The paper concludes that EMU is on the whole having a stabilising effect on the world economy, particularly in neighbouring countries. By helping to stabilise interest rates, inflation and GDP growth in the euro area, EMU has contributed to greater stability of those variables in other advanced countries. There is also evidence that EMU is facilitating international risk sharing and consumption smoothing. Predictions that EMU would increase exchange rate volatility are, in general, not confirmed by the data. However, the amplitude of mediumterm exchange rate swings has increased for some currency pairs. Moreover, there is little evidence so far that EMU has facilitated international policy coordination, partly reflecting the still fragmented representation of the euro area in multilateral fora. -- EU Bookshop.

On The Welfare Benefits Of An International Currency

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Author : Prakash Kannan
language : en
Publisher: International Monetary Fund
Release Date : 2007-03

On The Welfare Benefits Of An International Currency written by Prakash Kannan and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007-03 with Business & Economics categories.

Is it beneficial for a country's currency to be used internationally? And, if so, can we quantify the benefit? Since the emergence of the euro, there has been great interest in the consequences of a transfer of the US dollar's premier international role to the euro. Building on recent advancements in the literature on search models of money, this paper presents a novel model-based approach towards assessing the welfare benefits associated with the international use of a country's currency. The welfare gain for the Euro area in having the euro internationally used ranges from 1.7% to 2.1% of consumption.

International Finance

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Author : Hal S. Scott
language : en
Publisher:
Release Date : 2008

International Finance written by Hal S. Scott and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Business & Economics categories.

This casebook is an authoritative introduction to international finance, transactions, policy, and regulations. The continuing expansion of U.S. capital market regulation is a major topic, as is the implementation of international accounting standards. The book is divided into five parts. Part One deals with the international aspects of major domestic markets; Part Two with infrastructure for financial markets; Part Three with instruments and offshore markets; Part Four with emerging markets; and Part Five with the fighting of terrorism. While the approach of this book is rooted in government policy and regulation, the book introduces students to basic financial concepts and transactions. The conception of the field is original and complements existing texts written for finance or economics courses.

The Economist

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Author :
language : en
Publisher:
Release Date : 2005

The Economist written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with Commerce categories.

Europe And Global Imbalances

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Author : Philip R. Lane
language : en
Publisher: International Monetary Fund
Release Date : 2007-06

Europe And Global Imbalances written by Philip R. Lane and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007-06 with Business & Economics categories.

Although Europe in the aggregate is a not a major contributor to global current account imbalances, its trade and financial linkages with the rest of the world mean that it will still be affected by a shift in the current configuration of external deficits and surpluses. We assess the macroeconomic impact on Europe of global current account adjustment under alternative scenarios, emphasizing both trade and financial channels. Finally, we consider heterogeneous exposure across individual European economies to external adjustment shocks.