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Will the euro replace the U.S. dollar as the leading international currency? A volatility analysis

Author

Listed:
  • António Portugal Duarte

    (Univ Coimbra, CeBER, Faculty of Economics)

  • Fátima Sol Murta

    (Univ Coimbra, CeBER, Faculty of Economics)

  • Nuno Baetas Silva

    (Univ Coimbra, CeBER, Faculty of Economics)

Abstract

This paper analyzes the volatility of the big five international reserve currencies (pound sterling, U.S. dollar, Japanese yen, Chinese renminbi, and euro). The study employs GARCH models to compare the unconditional variance of its returns. The purpose is to evaluate if the leadership of the U.S. dollar may be replaced by one of the other currencies. The U.S. dollar displays greater volatility following the collapse of the Bretton Woods system. The Chinese renminbi and the Japanese yen also showed high volatility. The most stable currency is the euro, followed by the pound sterling. This result suggests two things: (i) despite BREXIT, the pound sterling remains a stable currency, and (ii) the low volatility of the euro could mean that soon it can rival or even replace the U.S. dollar as the leading international reserve currency.

Suggested Citation

  • António Portugal Duarte & Fátima Sol Murta & Nuno Baetas Silva, 2025. "Will the euro replace the U.S. dollar as the leading international currency? A volatility analysis," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 15(1), pages 1-27, March.
    • Handle: RePEc:spr:eurase:v:15:y:2025:i:1:d:10.1007_s40822-024-00306-7
    DOI: 10.1007/s40822-024-00306-7
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    More about this item

    Keywords

    Exchange rate; GARCH; International reserve currency; Returns; Volatility;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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