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Dominant Currencies and the Future of the Euro

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Author Info

  • Michele Fratianni

    ()

  • Andreas Hauskrecht

    ()

  • Aurelio Maccario

    ()

Abstract

The paper's thesis is that the US dollar, despite the inevitable erosion of market share that it will suffer at the hands of the euro, will remain the most important international currency. The transaction domain of an international currency depends on its ability to lower transaction costs relative to alternative currencies. The EMU financial markets will not be as integrated, and thus as liquid, as the US financial markets for quite some time, thus favoring the use of the dollar as a medium of exchange. Inertia and reputational considerations further favor the dollar. The future value of the exchange rate dollar-euro will depend on economic fundamentals more than on portfolio shifts. Portfolio shifts argue for an appreciation of the euro; but fundamentals can swamp the effects of portfolio shifts. Should the EMU fundamentals reflect the spirit of the Maastricht Treaty and the Growth and Stability Pact, the chances for a euro appreciation will increase. Some caution, however, is in order because the ECB is a new and untested central bank where consensus for a conservative policy may be harder to achieve than can be gleaned from a literal reading of the Maastricht Treaty. Copyright Kluwer Academic Publishers 1998

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File URL: http://hdl.handle.net/10.1023/A:1008312820408
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 9 (1998)
Issue (Month): 1 (January)
Pages: 467-492

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Handle: RePEc:kap:openec:v:9:y:1998:i:1:p:467-492

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: vehicle currencies; transaction costs; financial markets; central bank reputation; portfolio shifts; exchange-rate fundamentals;

References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Rudiger Dornbusch & Carlo A. Favero & Francesco Giavazzi, 1998. "The Immediate Challenges for the European Central Bank," NBER Working Papers 6369, National Bureau of Economic Research, Inc.
  2. Alogoskoufis, G. & Portes, R. & Rey, H., 1997. "The Emergence of the Euro as an International Currency," DELTA Working Papers 97-28, DELTA (Ecole normale supérieure).
  3. Fratianni, M., 1998. "Maxi vs Mini EMU: The Political Economy of Stage III," Papers 98-003, Indiana - Center for Econometric Model Research.
  4. Klein, Benjamin, 1974. "The Competitive Supply of Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(4), pages 423-53, November.
  5. Elvio Dal Bosco, 1998. "Central Banks' Management of Foreign Exchange Reserves," Open Economies Review, Springer, vol. 9(1), pages 665-684, January.
  6. Rudi Dornbusch & Carlo Favero & Francesco Giavazzi, 1998. "Immediate challenges for the European Central Bank," Economic Policy, CEPR & CES & MSH, vol. 13(26), pages 15-64, 04.
  7. Paolo Savona & Aurelio Maccario, 1998. "On the Relation between Money and Derivatives and its Application to the International Monetary Market," Open Economies Review, Springer, vol. 9(1), pages 637-664, January.
  8. Koichi Hamada, 1998. "The Choice of International Monetary Regimes in a Context of Repeated Games," Open Economies Review, Springer, vol. 9(1), pages 417-446, January.
  9. Niehans, Jurg, 1971. "Money and Barter in General Equilibrium with Transaction Costs," American Economic Review, American Economic Association, vol. 61(5), pages 773-83, December.
  10. McCauley, R.N., 1997. "The Euro and the Dollar," Princeton Essays in International Economics 205, International Economics Section, Departement of Economics Princeton University,.
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Citations

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Cited by:
  1. Michele Fratianni & Dominick Salvatore & Paolo Savona, 1998. "Ideas for the Future of the International Monetary System: Conclusions and Remarks," Open Economies Review, Springer, vol. 9(1), pages 689-700, January.
  2. Koichi Hamada, 1998. "The Choice of International Monetary Regimes in a Context of Repeated Games," Open Economies Review, Springer, vol. 9(1), pages 417-446, January.
  3. Michele Fratianni & Andreas Hauskrecht, 1998. "From the Gold Standard to a Bipolar Monetary System," Open Economies Review, Springer, vol. 9(1), pages 609-636, January.
  4. Pompeo Della Posta, 2005. "Fundamentals, International Role of Euro and 'Framing' of Expectations: What are the Determinants of the Dollar/Euro Exchange Rate?," Working Papers de Economia (Economics Working Papers) 24, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
  5. Elvio Dal Bosco, 1998. "Central Banks' Management of Foreign Exchange Reserves," Open Economies Review, Springer, vol. 9(1), pages 665-684, January.
  6. Pietro Alessandrini & Michele Fratianni, 2009. "International Monies, Special Drawing Rights, and Supernational Money," Working Papers 2009-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  7. Forrest Capie, 1998. "Monetary Unions in Historical Perspective: What Future for the Euro in the International Financial System," Open Economies Review, Springer, vol. 9(1), pages 447-466, January.
  8. Alberto Predieri, 1998. "Money Markets and Poliarchic Democratic States," Open Economies Review, Springer, vol. 9(1), pages 713-726, January.
  9. Dominick Salvatore, 1998. "International Monetary and Financial Arrangements: Present and Future," Open Economies Review, Springer, vol. 9(1), pages 375-416, January.
  10. Paolo Savona & Aurelio Maccario, 1998. "On the Relation between Money and Derivatives and its Application to the International Monetary Market," Open Economies Review, Springer, vol. 9(1), pages 637-664, January.
  11. Paolo Savona & Aurelio Maccario & Chiara Oldani, 2000. "On Monetary Analysis of Derivatives," Open Economies Review, Springer, vol. 11(1), pages 149-175, August.

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