Tag Archives: euro

The Euro at Ten: Why Do Effects on Trade Among Members Fall Short of Historical Estimates in Smaller Monetary Unions?

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By roughly the five-year mark after the launch of the euro in 1999, enough data had accumulated to allow an analysis of the early effects of the euro on European trade patterns. Studies include Micco, Ordoñez and Stein (2003), Bun and Klaassen (2002), Flam and Nordström (2006), Berger and Nitsch (2005), De Nardis and Vicarelli (2003, 2008), and Chintrakarn (2008). The general finding was that bilateral trade among euro members had indeed increased significantly, but that the effect was far less than the one that had earlier been estimated by Rose and others on the larger data set of smaller countries. Overall, the central tendency of these estimates seems to be a trade effect in the first few years on the order of 10-15%. None came anywhere near the tripling estimates of Rose (2000), or the doubling estimates (in a time series context) of Glick and Rose (2002). read more

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The euro’s challenge to the dollar does not depend on tipping

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My friend Barry Eichengreen, together with Marc Flandreau, has written a column in today’s Financial Times, that appears under the headline “Why the euro is unlikely to eclipse the dollar.” The body of the article is a claim that network externalities and tipping points are not important, or perhaps that they once were but no longer are.

The first two steps of their argument are:
(1) a multiple-currency system is the historical norm. The dollar-denominated system that we have experienced for more than 60 years is an aberration, so network externalities (aren’t) important.
(2) The dollar surpassed the pound in the 1924-25, not in 1948, so lags and tipping phenomena are not important. read more

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The Euro Could Surpass the Dollar Within 10 years

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Question from The International Economy Survey of Experts: 
Ten years from now, which will likely be the next great global currency?

My answer: 
Contrary to fevered popular speculation in the 1990s, the yen and the mark never had the potential to challenge the dollar as premier international currency:  their home economies were smaller than the US and their financial markets less well developed and liquid than New York.   The euro, however, is a credible challenger:  Euroland is roughly as big as the United States.  Indeed, evaluated at the most recent exchange rates, the euro economy has just now surpassed the US economy in size.   Also the euro has shown itself a better store of value than the dollar.   These are two of the most important determinants of international reserve currency status. read more

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