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The political economy of failure: The euro as an international currency

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  • Randall Germain
  • Herman Schwartz

Abstract

How do international currencies get established and consolidated? What domestic and international political foundations support an international currency? And what kinds of macro-economic flows enable an international currency? In this essay we consider these perennial questions of modern IPE scholarship in reverse order to ask whether the euro could ever have become, or seek to become, a true international currency rivalling the US dollar, used not only for passive foreign exchange reserves but also as a major commercial currency outside the EU. We argue that the EU lacks the will, the ideas and the capacity to promote the euro into the status of an international currency. In this article, we concentrate on this final issue of capacity, as the will and ideas issues have already been well explored. Capacity is an issue coeval with, if not prior to, the first two issues. The EU's current institutional arrangements and its economic geography create macro-economic consequences that diminish the euro's capacity to operate as a top currency. These conflicts go beyond the well-recognized issue that the euro-zone is not an optimum currency area. Examining the euro's debilities sheds light not only on the euro's (in)capacity to rival the dollar as an international currency, but also on the future of both the euro and the dollar in the aftermath of the euro-zone crisis.

Suggested Citation

  • Randall Germain & Herman Schwartz, 2014. "The political economy of failure: The euro as an international currency," Review of International Political Economy, Taylor & Francis Journals, vol. 21(5), pages 1095-1122, October.
  • Handle: RePEc:taf:rripxx:v:21:y:2014:i:5:p:1095-1122
    DOI: 10.1080/09692290.2014.891242
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    References listed on IDEAS

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    1. C. Randall Henning, 1994. "Currencies and Politics in the United States, Germany, and Japan," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 15, April.
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    Cited by:

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    2. Stefan Angrick, 2018. "Structural conditions for currency internationalization: international finance and the survival constraint," Review of International Political Economy, Taylor & Francis Journals, vol. 25(5), pages 699-725, September.
    3. Carla Norrlof & Simon Reich, 2015. "American and Chinese leadership during the global financial crisis: Testing Kindleberger’s stabilization functions," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 18(3), pages 227-250, September.
    4. Hager, Sandy Brian, 2016. "A Global Bond: Explaining the Safe-Haven Status of US Treasury Securities," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 1-24.
    5. Ponsot, Jean-François, 2016. "The “four I's” of the international monetary system and the international role of the euro," Research in International Business and Finance, Elsevier, vol. 37(C), pages 299-308.
    6. Labrinidis, George, 2014. "International reserves in the era of quasi-world money," MPRA Paper 59963, University Library of Munich, Germany.
    7. Hyoung-kyu Chey & Yu Wai Vic Li, 2016. "Bringing the Central Bank into the Study of Currency Internationalization: Monetary Policy, Independence, and Internationalization," GRIPS Discussion Papers 15-23, National Graduate Institute for Policy Studies.

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