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The External Policy of the Euro Area: Organizing for Foreign Exchange Intervention

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  • C. Randall Henning

    (Peterson Institute for International Economics)

Abstract

Scholarship on European integration has extensively debated the external character of the monetary union. The institutions of exchange rate policymaking bear substantially on the euro area's role in international monetary conflict and cooperation. This working paper examines the institutional arrangements for foreign exchange intervention within the euro area and the policymaking surrounding the market operations of autumn 2000—the only case to date of euro area intervention in currency markets. Drawing on interviews of officials in finance ministries, central banks, European institutions, and international organizations, as well as public sources, the paper specifies the division of labor among the European Central Bank (ECB), Eurogroup, and other European actors and compares that arrangement with corresponding arrangements in the G-7 partners. It concludes, among other things, that (1) the interinstitutional understanding within the euro area gives substantial latitude to the ECB, greater latitude than held by central banks in its G-7 partners, (2) but the understanding is susceptible to renegotiation over time, and (3) economic divergence within the euro area potentially threatens the ability of the monetary union to act coherently externally.

Suggested Citation

  • C. Randall Henning, 2006. "The External Policy of the Euro Area: Organizing for Foreign Exchange Intervention," Working Paper Series WP06-4, Peterson Institute for International Economics.
    • Handle: RePEc:iie:wpaper:wp06-4
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    References listed on IDEAS

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    Cited by:

    1. C. Randall Henning, 2007. "Congress, Treasury, and the Accountability of Exchange Rate Policy: How the 1988 Trade Act Should Be Reformed," Working Paper Series WP07-8, Peterson Institute for International Economics.
    2. repec:hal:spmain:info:hdl:2441/2084 is not listed on IDEAS
    3. repec:spo:wpmain:info:hdl:2441/2084 is not listed on IDEAS
    4. Alan Ahearne & Jürgen von Hagen, 2006. "European perspectives on global imbalances," Working Papers 50, Bruegel.

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    More about this item

    Keywords

    Foreign Exchange Intervention; Exchange Rate Policy and Policymaking; Economic and Monetary Union; Euro-Dollar Exchange Rate; European Central Bank; Eurogroup; G-7 Cooperation; Transatlantic Monetary Relations; Political Economy of Exchange Rates;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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