A Perspective on the Future Dollar-Euro Exchange Rate: Implications for the Peripheral Mediterranean Countries

Simon Neaime

No 2032, Working Papers from Economic Research Forum

Abstract: This study examines some of the factors that may constitute the main determinants of the dollar-euro exchange rate. The implications of the introduction of the single currency in Europe on Mediterranean central banks reserves and foreign external liabilities are examined, along with trade and capital flows, and exchange rate policies. It is shown that Mediterranean central banks will have to hold major portions of their foreign exchange reserves in euros. Also, a Mediterranean currency peg to the euro, or to a basket of currencies where the euro is allocated the highest weight will be important in reducing financial and trade transaction costs. It is also hypothesized that Mediterranean foreign debts will eventually have to be converted to euros as well.

Pages: 25 pages
Date: 2000-19-10, Revised 2000
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Published by The Economic Research Forum (ERF)

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