The Challenge of the Early Years
Edited by Marco Buti and André Sapir
Chapter 14: The Euro and the International Monetary System
Johan Baras, Reinhard Felke and Daniel Daco* INTRODUCTION Prior to the launch of the third stage of the European Economic and Monetary Union (EMU) on 1 January 1999, it was expected that the euro would gradually become the world’s second most important currency after the US dollar, clearly carrying more economic and commercial weight than the sum of its predecessor currencies. It was stated that the euro would be used widely in international transactions and that its introduction would contribute to the rapid development of one of the largest ﬁnancial markets in the world. Moreover, it was argued that linked to its evolving role as an international ﬁnance, investment and invoicing currency, the use of the euro as an oﬃcial reserve and anchor currency would also develop.1 In particular, the single currency was expected to become an important attraction pole for the countries having close trade and ﬁnancial relations with the euro area. In addition, the expectation was also that the launch of the euro would trigger over time important institutional changes in the organization and the functioning of the international monetary system. The assumption was that the single currency would become a major international currency prompting a re-balancing of the international monetary system away from the US dollar and thereby extending the scope for a more intense international monetary and economic dialogue, including possibly more extensive coordination. This chapter takes stock of the evolution of the euro’s external dimension since the start of the third stage of EMU....
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