The Emergence of the Euro as an International Currency
AbstractWe propose a new analytical basis for discussing the potential international role of the euro and offer specific estimates of its consequences. Previous work on the costs and benefits of a European international reserve currency (e.g., Alogoskoufis and Portes 1991, 1992, 1997) has considered many issues: seigniorage, benefits for "home" financial institutions, relaxation of the "external constraint" on macroeconomic policy, the role of the region in international institutions, effects on macroeconomic policy coordination, and the wider consequences of exercising or sharing "currency hegemony". Here we assess whether the euro will take on this role, we measure the effects of alternative scenarios on welfare in the main world regions, and we consider European policy options. We stress developments in financial asset markets, and we use a new model and new data to evaluate scenarios. As euro securities markets become deeper and more liquid and transactions costs fall, euro assets will become more attractive, and the use of the euro as a vehicle currency will expand; the two effects interact. The welfare analysis reveals potential benefits for the euro area, of the same order of magnitude as international seigniorage - at the cost of the US and the "Asian bloc".
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Bibliographic InfoPaper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 97-28.
Length: 49 pages
Date of creation: 1997
Date of revision:
Publication status: Published in Economic Policy, 26, April 1998, pp. 305-343
Other versions of this item:
- Richard Portes & Hélène Rey, 1998. "The emergence of the euro as an international currency," Economic Policy, CEPR & CES & MSH, vol. 13(26), pages 305-343, 04.
- G Alogoskoufis & R Portes & H Rey, 1998. "The Emergence of the Euro as an International Currency," CEP Discussion Papers dp0388, Centre for Economic Performance, LSE.
- Richard Portes & Helene Rey, 1998. "The Emergence of the Euro as an International Currency," NBER Working Papers 6424, National Bureau of Economic Research, Inc.
- Alogoskoufis, George & Portes, Richard & Rey, Hélène, 1997. "The Emergence of the Euro as an International Currency," CEPR Discussion Papers 1741, C.E.P.R. Discussion Papers.
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- G1 - Financial Economics - - General Financial Markets
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