How Does EMU Affect the Dollar and the Yen as International Reserve and Investment Currencies?

Abstract

European Economic and Monetary Union (EMU) and the introduction of the euro offer central banks and international investors, for the first time after World War II, a real alternative to the US dollar as an international reserve and investment currency. This is the case because Euroland represents a currency area with a GDP nearly as high as that of the United States and a share in world trade exceeding the share of the United States. Since the size of the underlying economy and the volume of global trade flows are important factors determining whether or not a currency develops into an international currency, EMU can eventually lead to a role of the euro exceeding by far the combined role of the currencies the euro replaces.KeywordsCentral BankEuropean Central BankInternational BondInternational ReserveReserve CurrencyThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.