Citation

Discussion Paper Details

Please find the details for DP2058 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: EMU and the External Value of the Euro

Author(s): Maria Demertzis and Andrew Hughes Hallett

Publication Date: February 1999

Keyword(s): currency markets, EMU, Euro and Exchange Rates

Programme Area(s): International Macroeconomics

Abstract: The size and economic relevance of Europe may imply a new role for the EURO in the international financial markets. But will the EURO compete with the $US and the Yen for a place in the basket of international currencies? Will that induce a bipolar or indeed tri-polar system, and with what consequences? Two important uncertainties arise from the fact that the long run trend of the EURO depends on the economic performance of the partner countries as well as on the properties of the new currency. They are: a) the international use of the EURO in trade, as well as its effect on the stability of the foreign exchange markets more generally, and b) the implementation of monetary and fiscal policies: how the new European policy mix will affect the degree of international policy co-ordination and exchange rate management. Much of this uncertainty is due to the fact that some of the effects will work in opposite directions and many will be felt gradually (primarily those that are dependent on private sector expectations), while others will become obvious as soon as the EURO is introduced. In this paper we discuss some of the reasons why the EURO might be strong or weak but more importantly why it may be volatile at least in the initial stages. Finally, we calculate the "synthetic" EURO and show how one EURO is not one ECU, an additional reason why it may prove volatile.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2058

Bibliographic Reference

Demertzis, M and Hughes Hallett, A. 1999. 'EMU and the External Value of the Euro'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2058