The International Role of the Euro and its Exchange Rate

Hendrik Luchtmeier, TU Berlin

Through the creation of the euro, the ongoing dollarization in parts of the world and the decline of the Japanese financial market there have been important changes in the international monetary system since the middle of the 1990ies. The US dollar has strengthened its position as an international currency, while the future role of the euro is still not clear, and the yen has lost ground against other currencies. During this time, the external value of the dollar has been rising by 49% against the euro and by 32% against the yen. Thus, there is an obvious interest in the relationship between the international role of a currency and its foreign exchange value (Frankel 2000, Cooper 1999, Bergsten 1997, Mundell 1999).

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