How Does Emu Affect the Dollar and the Yen as International Reserve and Investment Currencies?

25 Pages Posted: 18 Jun 1999

See all articles by Michael Frenkel

Michael Frenkel

WHU Otto Beisheim Graduate School of Management

Jens Sondergaard

Capital Group International, Inc. - London Office

Date Written: May 1999

Abstract

Since EMU represents a currency area with a GDP level and a world market share comparable to the United States, it is widely expected that the euro will become an important international currency. This paper suggests simple methods of how to quantify the effects that EMU may exert on the roles of the dollar and the yen as the other major international currencies. Estimates presented indicate that the euro may indeed lead to a significant decline in the market share of the dollar as an official reserve currency of central banks and as an investment currency of private portfolios. These effects hinge on the assumption that the euro will achieve a reputation similar to that of the deutschmark before EMU. The projected shifts can be expected to materialize only in the medium term so that no immediate abrupt changes in the demand for dollars will occur.

JEL Classification: F02, F21, F36

Suggested Citation

Frenkel, Michael and Søndergaard, Jens, How Does Emu Affect the Dollar and the Yen as International Reserve and Investment Currencies? (May 1999). Available at SSRN: https://ssrn.com/abstract=164550 or http://dx.doi.org/10.2139/ssrn.164550

Michael Frenkel (Contact Author)

WHU Otto Beisheim Graduate School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany
0049 261 6509281 (Phone)
0049 261 6509279 (Fax)

Jens Søndergaard

Capital Group International, Inc. - London Office ( email )

40 Grosvenor Place
London, England SW1X 7GG
United Kingdom

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