Why the Euro Will Rival the Dollar
By M. Chinn, Jeffrey A. Frankel. 2008
168 citations recorded by the source corpus.
The euro has arisen as a credible eventual competitor to the dollar as leading international currency, much as the dollar rose to challenge the pound 70 years ago. This paper uses econometrically-estimated determinants of the shares of major currencies in the reserve holdings of the world’s central banks. Significant factors include: size of the home country, rate of return, and liquidity in the relevant home financial center (as measured by the turnover in its foreign exchange market). There is a tipping phenomenon, but changes are felt only with a long lag (we estimate a weight on the preceding year’s currency share around .9). The equation correctly predicts out-of-sample a (small) narrowing in the gap between the dollar and euro over the period 1999-2007. This paper updates calculations regarding possible scenarios for the future. We exclude the scenario where the United Kingdom joins euroland. But we do take into account of the fact that London has nonetheless become the de facto financial center of the euro, more so than Frankfurt. We also assume that the dollar continues in the future to depreciate at the trend rate that it has shown on average over the last 20 years. The conclusion is that the euro may surpass the dollar as leading international reserve currency as early as 2015. (This abstract was borrowed from another version of this item.)
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/ea3be456a78863e368a672729561963528c2d9e8
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
- Barry Eichengreen
- D. Quah
- Marc Flandreau
- P. Agénor
- Jeffrey A. Frankel
- Geert Bekaert
- Campbell R. Harvey
- Dennis P. Quinn
In Finance
- Barry Eichengreen
- D. Quah
- Marc Flandreau
- Jeffrey A. Frankel
- P. Agénor
- Geert Bekaert
- Campbell R. Harvey
- Dennis P. Quinn
Citations in the corpus
- The rise and fall of the dollar (or when did the dollar replace sterling as the leading reserve currency (2009, methodology): “Others like Aliber (1966) and, more recently, Chinn and Frankel (2008), have built on the work of Triffin and others, suggesting that the dollar only overtook sterling after World War II.”
- The Global Economy’s Shifting Centre of Gravity (2011, background): “Figure 2 shows the shifting WECG at three-year intervals between 1980 and 2007 in the historical sample, and then extrapolated forwards to 2049.”