EconPapers    
Economics at your fingertips  
 

Why Is the Euro Punching Below Its Weight?

Ethan Ilzetzki, Carmen Reinhart and Kenneth Rogoff

No 26760, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: On the twentieth anniversary of its inception, the euro has yet to expand its role as an international currency. We document this fact with a wide range of indicators including its role as an anchor or reference in exchange rate arrangements—which we argue is a portmanteau measure—and as a currency for the denomination of trade and assets. On all these dimensions, the euro comprises a far smaller share than that of the US dollar. Furthermore, that share has been roughly constant since 1999. By some measures, the euro plays no larger a role than the Deutschemark and French franc that it replaced. We explore the reasons for this underperformance. While the leading anchor currency may have a natural monopoly, a number of additional factors have limited the euro’s reach, including lack of financial center, limited geopolitical reach, and US and Chinese dominance in technology research. Most important, in our view, is the comparatively scarce supply of (safe) euro-denominated assets, which we document. The European Central Bank’ lack of policy clarity may have also played a role. We show that the euro era can be divided into a “Bundesbank-plus” period and a “Whatever it Takes” period. The first shows a smooth transition from the European Exchange Rate Mechanism and continued to stabilize German inflation. The second period is characterised by an expanding ECB arsenal of credit facilities to European banks and sovereigns

JEL-codes: E5 F3 F4 N2 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-mon
Note: IFM ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Published as Ethan Ilzetzki & Carmen M Reinhart & Kenneth S Rogoff, 2021. "Why is the euro punching below its weight?," Economic Policy, vol 35(103), pages 405-460.

Downloads: (external link)
http://www.nber.org/papers/w26760.pdf (application/pdf)

Related works:
Journal Article: Why is the euro punching below its weight? (2020) Downloads
Working Paper: Why Is The Euro Punching Below Its Weight? (2020) Downloads
Working Paper: Why is the Euro Punching Below its Weight (2020) Downloads
Working Paper: Why is the Euro punching below it’s weight? (2020) Downloads
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:nbr:nberwo:26760

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w26760

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2025-03-19
Handle: RePEc:nbr:nberwo:26760