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Features of the euro's role in international financial markets

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Author Info

  • Carsten Detken
  • Philipp Hartmann

Abstract

Three years after the euro's introduction, we discuss its role in foreign exchange and international debt securities markets on the basis of a comprehensive set of data sources. In spot foreign exchange markets the euro's role resembles that of the deutschemark, with a dominant position in the Nordic and several Central European countries. Transaction costs in the important dollar-euro market are larger than they used to be for dollar-mark, but the same does not hold for any other major spot market. We discuss how this phenomenon may be explained by persistence of bid-ask quoting conventions in this market in the face of changed nominal parities. We show a notable reduction in euro swap trading and explain it, inter alia, with the elimination of dollar swaps meant to hedge exchange rate risk between currencies now subsumed in the euro. We observe strong growth of euro-denominated debt securities, while international euro bond investments are stable at the level of the 'synthetic euro' aggregate of legacy currencies. Copyright (c) CEPR, CES, MSH, 2002.

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Bibliographic Info

Article provided by CEPR & CES & MSH in its journal Economic Policy.

Volume (Year): 17 (2002)
Issue (Month): 35 (October)
Pages: 553-569

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Handle: RePEc:bla:ecpoli:v:17:y:2002:i:35:p:553-569

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Cited by:
  1. Elias Papaioannou & Richard Portes & Gregorios Siourounis, 2006. "Optimal Currency Shares in International Reserves: The Impact of the Euro and the Prospects for the Dollar," NBER Working Papers 12333, National Bureau of Economic Research, Inc.
  2. Dick van Dijk & Haris Munandar & Christian Hafner, 2011. "The euro introduction and noneuro currencies," Applied Financial Economics, Taylor and Francis Journals, vol. 21(1-2), pages 95-116.
  3. Chinn, Menzie & Frankel, Jeffrey, 2008. "The Euro May over the Next 15 Years Surpass the Dollar as Leading International Currency," Working Paper Series rwp08-016, Harvard University, John F. Kennedy School of Government.
  4. Chinn, Menzie David & Frankel, Jeffrey A., 2006. "Will the Euro Eventually Surpass the Dollar As Leading International Reserve Currency?," Santa Cruz Department of Economics, Working Paper Series qt4hz4n9pb, Department of Economics, UC Santa Cruz.
  5. McGroarty, Frank & ap Gwilym, Owain & Thomas, Stephen, 2006. "Microstructure effects, bid-ask spreads and volatility in the spot foreign exchange market pre and post-EMU," Global Finance Journal, Elsevier, vol. 17(1), pages 23-49, September.
  6. Luigi Zingales & Raghuram G. Rajan, 2003. "Banks and Markets: The Changing Character of European Finance," NBER Working Papers 9595, National Bureau of Economic Research, Inc.
  7. Elias Papaioannou & Richard Portes, 2008. "The international role of the euro: a status report," European Economy - Economic Papers 317, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  8. Söehnke Bartram & Stephen Taylor & Yaw-Huei Wang, 2004. "The Euro and European Financial Market Integration," Money Macro and Finance (MMF) Research Group Conference 2004 49, Money Macro and Finance Research Group, revised 13 Oct 2004.
  9. Linda Goldberg, 2011. "The international role of the dollar: Does it matter if this changes?," Staff Reports 522, Federal Reserve Bank of New York.
  10. de Jong, Pieter J. & Swanson, Peggy E., 2006. "The Euro deposit market in a global perspective," Global Finance Journal, Elsevier, vol. 16(3), pages 354-365, March.
  11. Dick van Dijk & Haris Munandar & Christian M. Hafner, 2005. "The Euro Introduction and Non-Euro Currencies," Tinbergen Institute Discussion Papers 05-044/4, Tinbergen Institute, revised 08 Jun 2006.

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