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Features of the euro's role in international financial markets

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  • Carsten Detken
  • Philipp Hartmann

Abstract

Forex markets and the euroComprehensive early evidenceThree years after the euro's introduction, we discuss its role in foreign exchange and international debt securities markets on the basis of a comprehensive set of data sources. In spot foreign exchange markets the euro's role resembles that of the deutschemark, with a dominant position in the Nordic and several Central European countries. Transaction costs in the important dollar-euro market are larger than they used to be for dollar-mark, but the same does not hold for any other major spot market. We discuss how this phenomenon may be explained by persistence of bid-ask quoting conventions in this market in the face of changed nominal parities. We show a notable reduction in euro swap trading and explain it, inter alia, with the elimination of dollar swaps meant to hedge exchange rate risk between currencies now subsumed in the euro. We observe strong growth of euro-denominated debt securities, while international euro bond investments are stable at the level of the ‘synthetic euro’ aggregate of legacy currencies.– Carsten Detken and Philipp Hartmann

Suggested Citation

  • Carsten Detken & Philipp Hartmann, 2002. "Features of the euro's role in international financial markets," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 17(35), pages 553-569.
    • Handle: RePEc:oup:ecpoli:v:17:y:2002:i:35:p:553-569.
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    File URL: http://hdl.handle.net/10.1111/1468-0327.00097
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    Cited by:

    1. Menzie Chinn & Jeffrey A. Frankel, 2007. "Will the Euro Eventually Surpass the Dollar as Leading International Reserve Currency?," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 283-338, National Bureau of Economic Research, Inc.
    2. Papaioannou, Elias & Portes, Richard & Siourounis, Gregorios, 2006. "Optimal currency shares in international reserves: The impact of the euro and the prospects for the dollar," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 508-547, December.
    3. Rajan, Raghuram & Zingales, Luigi, 2003. "Banks and Markets: the Changing Character of European Finance," CEPR Discussion Papers 3865, C.E.P.R. Discussion Papers.
    4. Menzie D. Chinn & Jeffrey A. Frankel, 2008. "The Euro May Over the Next 15 Years Surpass the Dollar as Leading International Currency," NBER Working Papers 13909, National Bureau of Economic Research, Inc.
    5. Chitu, Liva & Eichengreen, Barry & Mehl, Arnaud, 2012. "When did the dollar overtake sterling as the leading international currency? Evidence from the bond markets (revised)," Department of Economics, Working Paper Series qt3v03b36h, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    6. Söehnke Bartram & Stephen Taylor & Yaw-Huei Wang, 2004. "The Euro and European Financial Market Integration," Money Macro and Finance (MMF) Research Group Conference 2004 49, Money Macro and Finance Research Group, revised 13 Oct 2004.

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