Date: January 4, 1999
Question: "What is challenging the U.S. Dollar as the world's reserve currency?"
Answer: The Euro or the currency of agreed choice by eleven countries.
From eleven currencies to one liquid monetary unit, the Euro debutted auspiciously as it gained relative to the dollar.
Advantages of the new euro include:
Potential problems include:
- Minimization of intra-group hedging costs
- Portfolio effect of unit's volatility reduction
- Serious contender for World's Primary Currency
- Simpler and quicker pricing of securities belonging to bloc
- New generic monetary standard
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- Greater friction between politics and economics
- Reluctance to act as Principal Reserve Currency
- Displacements of local or perceived key industries
- One liquidity adjustment affects all
- Nationalistic discontent could lead to Balkanization of the unit
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