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A Perspective on the Future Dollar-Euro Exchange Rate: Implications for the Peripheral Mediterranean Countries

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  • Simon Neaime

    (Department of Economics/Institute of Financial Economics, American University of Beirut)

Abstract

This study examines some of the factors that may constitute the main determinants of the dollar-euro exchange rate. The implications of the introduction of the single currency in Europe on Mediterranean central banks reserves and foreign external liabilities are examined, along with trade and capital flows, and exchange rate policies. It is shown that Mediterranean central banks will have to hold major portions of their foreign exchange reserves in euros. Also, a Mediterranean currency peg to the euro, or to a basket of currencies where the euro is allocated the highest weight will be important in reducing financial and trade transaction costs. It is also hypothesized that Mediterranean foreign debts will eventually have to be converted to euros as well.

Suggested Citation

  • Simon Neaime, 2000. "A Perspective on the Future Dollar-Euro Exchange Rate: Implications for the Peripheral Mediterranean Countries," Working Papers 2032, Economic Research Forum, revised 10 2000.
    • Handle: RePEc:erg:wpaper:2032
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