The Political Economy of the Euro as an International Currency

Abstract

Economic and Monetary Union (EMU) in Europe will have important effects on international monetary affairs. This is true on both economic and policy-making dimensions. As for the first, the euro is a major new currency whose use in international transactions will affect global monetary and financial relations in and of itself. The euro might rival the dollar as the principal international currency, which would fundamentally alter the character of other countries’ exchange rate policies. Or the euro might prove a feeble currency, of little import to countries not directly tied to it. In this sense, the euro’s international economic role is of interest and importance.