The Euro and the International Financial System
London Business School Economics Discussion Paper No. DP 2001/4
25 Pages Posted: 7 Nov 2001
Date Written: June 2001
This paper analyses the issues raised by EMU for the relationships between the euro area and the international financial system. The depreciation of the euro exchange rate since the beginning of EMU has attracted most attention. The paper argues that none of the conventional explanations is supported by theory or the data and that a substantial appreciation will be required to bring the rate to a sustainable long-run equilibrium. It discusses exchange-rate intervention and suggests that the authorities should take a more active policy stance. The paper assesses the role of the euro as an international currency and the underlying developments in the capital markets and foreign exchange markets. It concludes with discussion of policies towards the international role of the euro, in areas such as: data needs; financial market developments; euroisation; EMU and the international financial architecture; and the role of the Euro Group of finance ministers.
Keywords: EMU, euro, exchange rates, international currencies, euroisation
JEL Classification: F3, F4, G1
Suggested Citation: Suggested Citation