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Costs and benefits of running an international currency


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  • Elias Papaioannou
  • Richard Portes


This report discusses the cost and benefits of running an international currency. It starts by discussing the effect of the euro's internationalization on financial markets, and presents data on the impact of the single currency on private credit. It considers recent work on the effect of the euro on financial integration and the implications of the euro's rising internationalization on the liquidity premium. Then it turns to the vehicle currency role of the euro and presents some results using new data from the latest BIS Triennial Survey on the foreign exchange market. Concerning the direct benefits of running an international currency, the report first offers estimates on the likely gains from international seigniorage and discuss work on the effects of the internationalization of the euro on the terms of trade and invoicing patterns in international trade. The implications of the international role of the euro for portfolio returns and the so-called “exorbitant privilege†are analysed in detail. The effects of the single currency on exchange rate volatility are also considered. It summarizes recent research on the impact of the euro on global bond and equity and analyzes the potential implications of the euro's international status for central banks' reserve holdings. Finally, it turns to the effects of the euro on the stability of domestic money demand and the problems posed for monetary policy, and the implications for international financial stability.

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Bibliographic Info

Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 348.

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Length: 95 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:euf:ecopap:0348

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Keywords: euro; international currency; international role of the euro; Papaioannou ; Portes ; Costs and benefits of running an international currency;

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Cited by:
  1. Saeed Armin & Saifuzzaman Ibrahim & W. Azman-Saini, 2013. "The Impact of European Monetary Union on Finance-Growth Nexus," Transition Studies Review, Springer, vol. 19(3), pages 347-356, February.
  2. Pietro Alessandrini & Michele Fratianni, 2009. "International Monies, Special Drawing Rights, and Supernational Money," Mo.Fi.R. Working Papers 26, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  3. Santos Silva, J.M.C & Tenreyro, Silvana, 2010. "Currency Unions in Prospect and Retrospect," CEPR Discussion Papers 7824, C.E.P.R. Discussion Papers.
  4. Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Peydró-Alcalde, José Luis, 2009. "What Lies Beneath the Euro's Effect on Financial Integration? Currency Risk, Legal Harmonization, or Trade?," CEPR Discussion Papers 7314, C.E.P.R. Discussion Papers.
  5. Benjamin Cohen, 2012. "The Benefits and Costs of an International Currency: Getting the Calculus Right," Open Economies Review, Springer, vol. 23(1), pages 13-31, February.
  6. Philip R. Lane, 2008. "EMU and Financial Integration," The Institute for International Integration Studies Discussion Paper Series iiisdp272, IIIS.


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