The International Impact of the Euro and its Implications for Transition Countries

Abstract

The introduction of the euro promises to be one of the great events in modern history. It will certainly be an event comparable to the breakdown of the Bretton Woods arrangements in the early 1970s when the anchored dollar standard broke down and drifted into a dollar standard and then flexible exchange rates. But its significance lies even deeper. The collapse of the Bretton Woods arrangements did not change the power configuration of the system. Both before and after the breakdown, the dollar was far and away the dominant currency. By contrast, the introduction of the euro will challenge the status of the dollar and alter the power configuration of the system. For this reason the introduction of the euro is the most important development in the international monetary system since the dollar replaced the pound sterling as the dominant international currency after the outbreak of World War I.1