Abstract
The private ECU has moved beyond a currency basket to function fully as a currency in the financial markets, with market-determined ECU interest rates and a market-determined exchange rate that the banks peg to the basket. A utility maximizing model is developed that explains the existence of the ECU financial markets, where demands for ECU-denominated financial instruments must depend on risk aversion and acquisition costs. Transactions demand for ECUs is based almost solely on ECU transactions in the financial markets. The ecu's future as an independent currency with a floating exchange rate will require a central bank to control supply and an ECU money demand that is based on ECU transactions in goods and services.
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