By Benjamin J. Cohen

Can the euro problem the supremacy of the U.S. buck as an international forex? From the time Europe’s joint cash used to be born, many have envisioned that it will quickly in achieving parity with the buck or almost certainly even surpass it. in truth, even if, the euro has remained firmly planted within the dollar’s shadow. The essays amassed during this quantity clarify why. due to America’s exterior deficits and looming international debt, the greenback can by no means be as dominant because it as soon as was once. yet Europe’s cash is not able to mount an efficient problem. The euro suffers from a few serious structural deficiencies, together with an anti-growth bias that's outfitted into the associations of the financial union and an ambiguous governance constitution that sows doubts between potential clients. As contemporary occasions have proven, individuals of the euro area stay prone to monetary situation. in addition, missing a unmarried voice, the bloc keeps to punch less than its weight in financial international relations. the area turns out headed towards a leaderless financial order, with a number of currencies in competition yet none truly dominant. This assortment distils the perspectives of 1 of the world’s major students in worldwide foreign money, and may be of substantial curiosity to scholars and students of overseas finance and overseas political economic system.

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Money can be made by making money. This motive alone should ensure that all types of enterprises and institutions—nonbanks as well as banks—will do everything 32 The global currency system they can to promote new forms of e-currency wherever and whenever they can. As one source puts it: “The companies that control this process will have the opportunity to make money through seigniorage, the traditional profit governments derived from minting money. Electronic seigniorage will be a key to accumulating wealth and power in the twenty-first century” (Weatherford 1997: 245–46).

Stung by the financial crisis that erupted in 1997, which most analysts attribute at least in part to the dollardominated pegs that East Asian governments had tried vainly to defend against unrelenting speculation, many states today are attracted by the alternative of no peg at all—a kind of default strategy that relieves them of any formal obligation to intervene in currency markets. But floating is hardly an all-purpose panacea, as informed observers are now beginning to acknowledge (Cooper 1999; Hausmann 1999).

Europe’s new currency started life in January 1999 with many of the attributes necessary for competitive success already well in evidence. Together, the twelve current members of the Economic and Monetary Union—familiarly known as the euro area or euro zone—constitute an economy nearly as large as that of the United States, with extensive trade relations not only in the European region but 42 The global currency system around the world. The potential for network externalities is considerable. Likewise, the euro zone started with both unquestioned political stability and an enviably low rate of inflation, backed by a joint monetary authority, the European Central Bank (ECB), that is fully committed to preserving confidence in the euro’s future value.

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