The Challenge of the Early Years
Edited by Marco Buti and André Sapir
Chapter 13: The Euro and the International Financial System
13. The euro and the international ﬁnancial system Richard Portes 1. THE ISSUES At the outset of EMU, the international role of the euro was not at the forefront of policy makers’ concerns. The ﬁrst priority was to ensure a smooth introduction of the new currency into the money markets. The second was to establish the principles and operation of a single monetary policy. But even from the time of One Market, One Money, it was clear that the creation of a single currency for the European Union would challenge the vision and coherence of the Union’s economic and ﬁnancial policies towards the rest of the world. Several speciﬁc issues were seen to pose diﬃcult questions for EU policy. First, the new currency would weigh more heavily than the DM in international trade and ﬁnance, so its exchange rate with the dollar and the yen would be that much more important. Even if the international monetary system did not become a true tri-polar structure, stability might require conscious exchange-rate policy coordination among the three main currencies. Second, to make the new currency area into a uniﬁed pole in the system, its policy authorities would have to develop a consistent line and learn to speak with a single voice in the international dialogue. Third, they would have to be able to deal with the multiple tasks associated with running an international currency: responsibilities for the rules of the international ﬁnancial system, for the stability of international ﬁnancial markets,...
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