After the first decade of the advent of the euro, analysts have examined the prospect of the European common currency to become not only regional currency, but also its usage to spread internationally. Not only has the euro proved to be more than a powerful symbol of collective identity, but it has also provided price stability, it has been a shelter against currency crises and it has attracted new member states that wish to join the euro area. However, this positive landscape has changed in the face of the global financial crisis and the Greek budgetary crisis. Many have seen the euro only as ‘a fair weather currency’ arguing that confluence of factors facilitates the euro’s deficiency of becoming ‘bad weather currency’ such as economic divergence and internal imbalances between member states. The first section of the essay discusses the benefits and costs of issuing an international currency. By applying the three attributes of money to the euro, the second section reviews the euro’s performance as a medium of exchange, unit of account and store of value. The final section identifies factors which hinder the European common currency’s success as an international currency. These factors include: inertial forces characterising the financial markets, governance design of EMU, member states’ internal imbalances, fragmentation of financial markets, non-economic limitations and the European Union’s discouraging stance towards the euro’s international status.
Table of Contents
1. Introduction
2. Benefits and Costs of International Currency Status
3. The international role of the euro: application of the three classic attributes of money
3.1. Store of Value
3.2. Medium of Exchange
3.3. Unit of Account
4. Why has the euro’s international success been limited?
4.1. Inertial forces
4.2. Governance Design of EMU
4.3. Internal imbalances
4.4. Financial fragmentation
4.5. Non-economic limitations
4.6. Discouraging stance toward euro’s international status
5. Conclusion
Research Objectives and Themes
This paper examines the prospects of the euro as a global reserve currency, analyzing its performance relative to the US dollar and identifying the systemic, economic, and political factors that constrain its international adoption.
- Analysis of the benefits and costs associated with issuing an international currency.
- Evaluation of the euro's performance through the lens of the three classic functions of money: medium of exchange, unit of account, and store of value.
- Identification of barriers to international success, including inertial market forces and the governance structure of the Economic and Monetary Union (EMU).
- Examination of the impact of internal eurozone imbalances and financial fragmentation on the currency's global status.
- Review of the European Central Bank's neutral stance toward the internationalization of the euro.
Excerpt from the Book
1. Introduction
After the first decade of the advent of the euro, analysts have examined the prospect of the European common currency to become not only regional currency, but also its usage to spread internationally. Not only has the euro proved to be more than a powerful symbol of collective identity, but it has also provided price stability, it has been a shelter against currency crises and it has attracted new member states that wish to join the euro area. However, this positive landscape has changed in the face of the global financial crisis and the Greek budgetary crisis. Many have seen the euro only as ‘a fair weather currency’ arguing that confluence of factors facilitates the euro’s deficiency of becoming ‘bad weather currency’ such as economic divergence and internal imbalances between member states. The first section of the essay discusses the benefits and costs of issuing an international currency. By applying the three attributes of money to the euro, the second section reviews the euro’s performance as a medium of exchange, unit of account and store of value. The final section identifies factors which hinder the European common currency’s success as an international currency. These factors include: inertial forces characterising the financial markets, governance design of EMU, member states’ internal imbalances, fragmentation of financial markets, non-economic limitations and the European Union’s discouraging stance towards the euro’s international status.
Summary of Chapters
1. Introduction: This chapter outlines the development of the euro, its initial success as a regional currency, and the subsequent challenges posed by the global financial and Greek budgetary crises.
2. Benefits and Costs of International Currency Status: This chapter discusses the theoretical advantages of international currency status, such as seigniorage and lower transaction costs, while addressing the associated risks of increased volatility.
3. The international role of the euro: application of the three classic attributes of money: This section evaluates the euro’s functional performance as a store of value, a medium of exchange, and a unit of account.
4. Why has the euro’s international success been limited?: This chapter identifies six core factors, including inertial forces and governance constraints, that prevent the euro from fully challenging the dollar.
5. Conclusion: This chapter synthesizes the arguments, noting that while the euro is a dominant regional currency, structural and political impediments continue to limit its global reach.
Keywords
Euro, International Reserve Currency, EMU, Seigniorage, Financial Markets, Trade Invoicing, Network Externalities, Governance, Economic Divergence, Currency Peg, Monetary Union, US Dollar, Euroization, Financial Fragmentation, Global Financial Crisis.
Frequently Asked Questions
What is the core focus of this publication?
The work explores whether the euro can evolve from a regional currency into a true global reserve currency and examines the factors that facilitate or hinder this transition.
What are the primary thematic areas covered?
The text focuses on the functional attributes of money (store of value, medium of exchange, unit of account), the governance of the Economic and Monetary Union, and the competitive relationship between the euro and the US dollar.
What is the central research question?
The central question is: "Can the euro ever be a global reserve currency?" and why its success in this regard has been limited to date.
Which scientific methodology is employed?
The author employs a comparative institutional and analytical framework, reviewing economic literature and performance data to assess the euro’s role against international benchmarks.
What topics are discussed in the main body?
The main body covers the economic benefits of international currencies, an empirical assessment of the euro’s functions, and an in-depth analysis of the barriers—such as financial fragmentation and internal imbalances—that constrain its international use.
Which keywords best characterize this work?
Key terms include Euro, Reserve Currency, EMU, Financial Markets, Network Externalities, and Economic Governance.
How does the author define the "exorbitant privilege"?
The author defines it as the excess returns on assets and the ability of the issuing country to avoid or deflect the burden of adjustment to current account imbalances.
What role does the ECB play in the euro's internationalization?
The ECB maintains an "officially neutral" stance, adopting a policy that neither encourages nor discourages the international use of the euro, treating it as an entirely demand-driven process.
Why is the EMU architecture seen as a limitation?
The lack of a significant federal budget, limited coordination of fiscal policies, and the absence of a strong political counterpart to the central bank are cited as structural weaknesses.
- Arbeit zitieren
- Veronika Minkova (Autor:in), 2010, Can the euro ever be a global reserve currency?, München, GRIN Verlag, https://www.hausarbeiten.de/document/179300
