The success of the euro in becoming an international reserve and trading currency

Abstract

From its early years and throughout its existence, the euro has been showing signs of internationalization as more countries outside the euro area were increasingly making use of the currency through its different roles, mainly in its role as a reserve currency. Thus despite its relatively recent introduction, the euro has already had an impact on the international arena. Evidence shows that in the past few years, major shifts towards the euro in the currency composition of international reserves were experienced through different central banks. As a result, the euro has firmly established its role as an important reserve currency supported by its gradually increasing use at an international level. The key objective of this dissertation is to study the hypothesis that the euro is becoming a major currency in the global markets. It aims to highlight the different roles, which the euro developed throughout the years where the focus is mainly on the role of the euro as a reserve currency compared to other major currencies. An overview of where the euro stands today with respect to certain facets of its international role is also being presented. Thus even though the main focus of this dissertation is the role of the euro as a reserve currency, it is recognized that this role is highly dependent upon other characteristics of the euro as a global currency such as its roles in capital markets, foreign exchange markets and in international trade and therefore these are also being analyzed in this dissertation. Ultimately, this dissertation assesses the implications for the euro in becoming an international currency in the future and eventually outshines the dollar's supremacy. However, for the euro to eat into the dollar's position as a global currency, it must overcome some serious obstacles, which are also outlined in this dissertation.