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The euro and international capital markets

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Author Info
Carsten Detken () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
Philipp Hartmann () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)

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Abstract

This paper provides a broad empirical examination of the major currencies' roles in international capital markets, with a special emphasis on the first year of the euro. A contribution is made as to how to measure these roles, both from the viewpoint of international financing as well as from the one of international investment activities. Time series of these new measures are presented, including euro aggregates calculated up to five years back in time. The data allow for the identification of changes in the role of the euro (or other main currencies) during 1999 compared to the aggregate of euro predecessor currencies, net of intra-euro area assets/ liabilities, before stage 3 of EMU. A number of key factors determining the currency distribution of international portfolio investments, such as relative market liquidity and relative risk characteristics of assets, are also examined empirically. It turns out that for almost all important market segments for which data are available, the euro immediately became the second most widely used currency for international financing and investment. For the flow of international bond and note issuance it has even slightly overtaken the US dollar in the second half of 1999. The data also suggest that this early supply of euro bonds by non-euro area residents, clearly exceeding the euro-predecessor currency aggregate,is actually absorbed by euro area residents and not by outside investors so far. JEL Classification: G15; F32; G11; F21.

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Publisher Info
Paper provided by European Central Bank in its series Working Paper Series with number 19.

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Length: 55 pages
Date of creation: Apr 2000
Date of revision:
Handle: RePEc:ecb:ecbwps:20000019

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Related research
Keywords: International capital markets international currencies Euro Dollar Yen EMU capital flows international monetary system portfolio selection money markets bond markets equity markets bank lending.

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Cited by:
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  1. Guy Meredith, 2001. "Why Has the Euro Been So Weak?," IMF Working Papers 01/155, International Monetary Fund. [Downloadable!]
  2. Michael G. Kollo, 2005. "Underwriter competition and gross spreads in the eurobond market," Working Paper Series 550, European Central Bank. [Downloadable!]
  3. Portes, Richard, 2001. "The Euro and the International Financial System," CEPR Discussion Papers 2955, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Menzie Chinn & Jeffrey Frankel, 2005. "Will the Euro Eventually Surpass the Dollar as Leading International Reserve Currency?," NBER Working Papers 11510, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Marco Pagano & Ernst-Ludwig von Thadden, 2004. "The European Bond Markets under EMU," CSEF Working Papers 126, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy. [Downloadable!]
    Other versions:
  6. Rainer Schweickert, 2001. "Assessing the Advantages of EMU-Enlargement for the EU and the Accession Countries: A Comparative Indicator Approach," Kiel Working Papers 1080, Kiel Institute for the World Economy. [Downloadable!]
  7. Elias Papaioannou & Richard Portes & Gregorios Siourounis, 2006. "Optimal currency shares in international reserves - the impact of the euro and the prospects for the dollar," Working Paper Series 694, European Central Bank. [Downloadable!]
    Other versions:
  8. Michele Manna & Philipp Hartmann & Andres Manzanares, 2001. "The microstructure of the Euro money market," Working Paper Series 080, European Central Bank. [Downloadable!]
    Other versions:
  9. Javier Santillán & Marc Bayle & Christian Thygesen, 2000. "The impact of the euro on money and bond markets," Occasional Paper Series 1, European Central Bank. [Downloadable!]
  10. Liliane Karlinger, 2002. "The Impact of Common Currencies on Financial Markets: A Literature Review and Evidence from the Euro Area," Working Papers 02-35, Bank of Canada. [Downloadable!]
  11. 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. [Downloadable!]
  12. Michel Beine & Charles S. Bos & Sebastian Laurent, 2005. "The Impact of Central Bank FX Interventions on Currency Components," Tinbergen Institute Discussion Papers 05-103/4, Tinbergen Institute. [Downloadable!]
    Other versions:
  13. Menzie D. Chinn & Jeffrey A. Frankel, 2008. "The Euro May Over the Next 15 Years Surpass the Dollar as Leading International Currency," NBER Working Papers 13909, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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