The Indeterminacy of the Euro Conversion Rates. Why it Matters and How it can be Solved

Paul De Grauwe

No 1677, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The Maastricht Treaty and the Madrid Council decision severely restrict the choice of the euro conversion rates. In practical terms the authorities can only select the Ecu rates prevailing in the market the day before conversion. The market will lack a fixed point, however, so that infinite possible Ecu rates (and thus euro rates) could emerge. This indeterminacy problem is not solved by announcing fixed bilateral conversion rates in advance. The indeterminacy of the euro rates will spill over into an indeterminacy of the exchange rates of outside currencies with the EMU currencies (e.g. the dollar/DM rate). As a result, turbulence in these foreign exchange markets is likely during the approach to EMU. The emergence of speculative bubbles cannot be excluded. We discuss the possible solutions to this problem. They all involve steps towards providing an anchor in the foreign exchange markets.

Keywords: Exchange Rate; Maastricht Treaty; Monetary Integration (search for similar items in EconPapers)
JEL-codes: F33 F36 F42 (search for similar items in EconPapers)
Date: 1997-07
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1677 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:1677

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1677

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().