The Role of Euro in the International Monetary System

Abstract

The introduction of the euro at the beginning of 1999 promised to mark a turning point in the international monetary system. It is often compared with the transformation of the international monetary system in the early 1970s from the system of fixed exchange rates endorsed at the Bretton Woods conference to the regime of managed flexible exchange rates. But in fact its significance is deeper. Dollar was the dominant currency. The introduction of the euro, on the other hand, challenged the status of the dollar and alter the power configuration of the system. For this reason the introduction of the euro is the most important development in the international monetary system since the dollar replaced the pound sterling as the dominant international currency. The introduction of the euro is undoubtedly the most profound change in the international monetary system since the collapse of the Bretton Woods system in 1973. It is therefore understandable that a great deal of interest is being shown in the prospective role of the euro as an international currency . It have taken some time for traders, investors, analysts and other financial market agents to become accustomed to a new currency and decide on the weight which they will assign to it for various purposes.