The External Policy of the Euro Area: Organizing for Foreign Exchange Intervention

41 Pages Posted: 25 Jun 2006

See all articles by C. Randall Henning

C. Randall Henning

Peter G. Peterson Institute for International Economics

Date Written: June 2006


Scholarship on European integration has extensively debated the external character of the monetary union. The institutions of exchange rate policymaking bear substantially on the euro area's role in international monetary conflict and cooperation. This working paper examines the institutional arrangements for foreign exchange intervention within the euro area and the policymaking surrounding the market operations of autumn 2000 - the only case to date of euro area intervention in currency markets. Drawing on interviews of officials in finance ministries, central banks, European institutions, and international organizations, as well as public sources, the paper specifies the division of labor among the European Central Bank (ECB), Eurogroup, and other European actors and compares that arrangement with corresponding arrangements in the G-7 partners. It concludes, among other things, that (1) the interinstitutional understanding within the euro area gives substantial latitude to the ECB, greater latitude than held by central banks in its G-7 partners, (2) but the understanding is susceptible to renegotiation over time, and (3) economic divergence within the euro area potentially threatens the ability of the monetary union to act coherently externally.

Keywords: Foreign Exchange Intervention, Exchange Rate Policy and Policymaking, Economic and Monetary Union, Euro-Dollar Exchange Rate, European Central Bank, Eurogroup, G-7 Cooperation, Transatlantic Monetary Relations, Political Economy of Exchange Rates

JEL Classification: F31, F32, F33, F42

Suggested Citation

Henning, C. Randall, The External Policy of the Euro Area: Organizing for Foreign Exchange Intervention (June 2006). IIE Working Paper No. 2006-4, Available at SSRN: or

C. Randall Henning (Contact Author)

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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