Euro and the international financial system

Portes, R (2001) Euro and the international financial system. Working Paper. London Business School Economics Discussion Paper Series.

Abstract

This paper analyses the issues raised by EMU for the relationships between the euro area and the international ficial system. The depreciation of the euro exchange rate since the beginning of EMU has attracted most attention. The paper argues that none of the conventional explanations is supported by theory or the data and that a substantial appreciation will be required to bring the rate to a sustainable longrun equilibrium. It discusses exchangerate intervention and suggests that the authorities should take a more active policy stance. The paper assesses the role of the euro as an international currency and the underlying developments in the capital markets and foreign exchange markets. It concludes with discussion of policies towards the international role of the euro, in areas such as: data needs; ficial market developments; euroisation; EMU and the international ficial architecture; and the role of the Euro Group of fice ministers.