The Euro and Transatlantic Relations

JCMS: Journal of Common Market Studies, 2009

After nearly a century of dominance of the international monetary system, has the US dollar finally met its match in the euro? When Europe's Economic and Monetary Union (EMU) came into existence in 1999, many observers predicted that the euro would soon join America's greenback at the peak of global finance. Achievements, however, have fallen short of aspirations. After an initial spurt of enthusiasm, international use of the euro now actually appears to be levelling off, even stalling, and so far seems confined largely to a limited range of market sectors and regions. The euro has successfully attained a place second only to the greenback, but it remains, and is likely to remain, a quite distant second without a determined effort by EMU authorities to promote their money's global role. The temptation will surely be great. In practical terms, it is difficult to imagine that EMU authorities will refrain entirely from trying to promote a greater role for the euro. But that, in turn, could be a recipe for discord with the US, which has never made any secret of its commitment to preserving the greenback's worldwide dominance. A struggle for monetary leadership could become a source of sustained tensions in US-European relations. Fortunately, however, there seems relatively little risk of a destabilising escalation into outright geopolitical conflict.

Kyan Mortazavi, 2014

The British Pound, which was once the world’s number one traded currency, gave its place gradually between the years of 1945-56 to the US Dollar. The UK lost its prime position in the world as the result of World War I and the declining British Empire. The US confirmed its place as a major power, not only in the economy, but also in world politics, by means of its economy. However, the US Dollar began its downfall since 1990s, when the Deutsche Mark, French Franc and the Japanese Yen began to gain a share in the reserve holdings of central banks across the world. This process continued on and off in the course of time until 1999, when the Euro was introduced. As the Euro started to gain momentum, it became a potential rival for the US Dollar. That could be due to the fact that the US experienced a chronic account deficit for almost 25 years. Does it mean that the EU gains more power in world politics by means of its economy and the Euro becoming a major reserve currency at the expense of the US Dollar?

1999

(EMU) will affect the economic balance of force; between the European Union and the United States. • The introduction of the euro as the currency of the EMU will aid participating European Union (EU) member states by eliminating transaction costs, exchange rate risks, and interest rate spreads across the 11 European currencies early in the coming century. • The proportion of international transactions and assets held, in euros, could approximate that held in dollars within 10 years. • The U.S.-European political relationship is increasingly disconnected due to the lack of a common external threat, with the United States being concerned about threats to global security and European states focusing on the EMU and unemployment problems.

The euro has survived its first decade, overcoming questions about its viability and political and economic raison d'être. “The Euro and the Dollar in the Crisis and Beyond,” a conference sponsored by Bruegel, the Peterson Institute for International Economics and the Federal Reserve Bank of Dallas, marked the milestone on March 17, 2010, with discussions of Europe's monetary integration, the euro's global role relative to the dollar and the currency's prospects in the aftermath of the 2008–09 global recession. ; Adam Posen, senior fellow at the Peterson Institute and member of the Monetary Policy Committee of the Bank of England, set the tone in opening remarks, referring to “what is a very critical economic relationship and some very interesting economic issues” involving the single currency. Vítor Gaspar, a special adviser of the Banco de Portugal and former director general of research at the European Central Bank (ECB), lauded the euro's “extremely successfu...

In this article, I investigate whether the euro is set to eclipse the dollar as the world currency. Although the euro has gained in importance at the expense of the dollar in all key currency functions, I argue that it is not about to replace the dollar as the unique currency of global importance. Notwithstanding America's current weakness, I argue that different preferences for monetary and fiscal policy inside the euro-zone, and the need to coordinate these, will make it difficult to accommodate and correct large-scale imports over the long term. I also find that taking on the role of the world's preferred import destination is bound to exacerbate internal differences and complicate decision-making.