The creation of the euro at the beginning of 1999 represents one of the most significant events in international finance since the end of World War II. Never in the past had a group of sovereign nations voluntarily given up their national currency for a common currency. The article begins by reviewing the benefits and costs of the euro on the participating countries; it then examines the role of the European Central Bank (ECB) in the conduct of monetary policy in the European Monetary Union, as well as its effect on the euro/dollar and euro/yen exchange rates; finally, the article analyzes the effect that the ECB has and is likely to have on the functioning of the international monetary system.
Get full access to this article
View all access options for this article.
References
1.
Angeloni, I., and B. Mojon.2000. After the changover: Three conditions for a successful single monetary policy. Euro50:19-28.
2.
Bayoumi, T., and B. Eichengreen.1993. Shocking aspects of European monetary unification. In Adjustment and growth in the European monetary union, edited by F. Torres and F. Giavazzi, 241-60. Cambridge: Cambridge University Press.
3.
—. 1996. Operationalizing the theory of optimum currency areas . CEPR discussion paper no. 1484. London: Center for Economic Policy Research.
4.
Bayoumi, T., and P. Masson.1994. Fiscal flows in the United States and Canada: Lessons for monetary union in Europe. CEPR Discussion paper no. 1057. London: Center for Economic Policy Research.
5.
Bini-Smaghi, L., and S. Vori.1993. Rating the EC as an optimal currency area. Rome: Bank of Italy.
6.
Buiter, W.H.2000. Optimal currency areas: Why does the exchange rate regime matter? CEPR discussion paper no. 2366, January. London : Center for Economic Policy Research.
7.
Duisenberg, W.F.1999. Economic and monetary union in Europe—The challenges ahead. In New Challenges for Monetary Policy, symposium sponsored by theFederal Reserve Bank of Kansas City.
8.
European Central Bank (ECB).1999. The stability-oriented policies monetary policy strategy of the Eurosystem . ECB Monthly Bulletin, January, 39-50.
9.
European Commission.1990. One market, one money. European Economy44:29-34.
10.
Feldstein, M.2000. The European Central Bank and the euro: The first year . Journal of Policy Modeling, May: 345-54.
11.
Frankel, J., and A. Rose.1998. The endogeneity of optimum currency criteria. Economic Journal108:1009-25.
12.
Fratianni, M., D. Salvatore , and J. von Hagen, eds. 1997. Handbook of macroeconomic policies in open economies . Westport CT: Greenwood.
13.
International Monetary Fund.1998. The real effects of monetary policy in the European Union. Working paper no. 160. Washington, DC: International Monetary Fund.
14.
—. 2000a. Exchange rate regimes in an increasingly integrated world economy. Occasional paper no. 195. Washington, DC : International Monetary Fund.
15.
—. 2000b. World economic outlook supporting studiesWashington, DC: International Monetary Fund.
16.
Issing, O.2000a. The ECB's monetary policy: Experience after the first year. Journal of Policy Modeling May:325-43.
17.
—. 2000b. The monetary policy of the ECB in a world of uncertainty . In Monetary policy-making under uncertainty ECB and Center for Financial Studies, 3-9. University of Frankfurt.
18.
Krugman, P.1994. Lessons of Massachusetts for EMU. In Adjustment and growth in the European Monetary Union, edited by F. Torres and F. Giavazzi , 241-60. Cambridge : Cambridge University Press .
19.
Organization for Economic Cooperation and Development. 1986. Flexibility in the labor market. Paris: OECD. —. 1999. EMU: Facts, challenges and policies. Paris: OECD.
20.
—. 2000a. EMU: One year on. Paris: OECD.
21.
—. 2000b. Financial market trends. Paris : OECD.
22.
Portes, R., and H. Rey.1998. The emergence of the euro as an international currency. In Prospects and challenges for the euro, edited by D. Begg, J. von Hagen, C. Wyplosz , and K. Zimmermann, 305-43. Oxford : Blackwell.
23.
Salvatore, D.1996. The European Monetary System: Crisis and future . Open Economies Review, December:593-615.
24.
—. 1997. The unresolved problem with the EMS and EMU. American Economic Review May:224-26.
25.
—. 1998a. Europe's structural and competitiveness problems . World Economy, March: 189-205.
26.
—. 1998b. The operation and future of the International Monetary System. In Ideas for the future of the International Monetary System, edited by M. Fratianni, D. Salvatore, and R Savona , 5-45. Hingham, MA: Kluwer.
27.
—. 2002a. The euro: Expectations and performance. Eastern Economic Journal, January.
28.
—. 2002b. The architecture and future of the international monetary sytem. In The open economy macromodel: past, present and future , edited by W. Young.Hingham, MA: Kluwer.
29.
Tavlas, G.S.1997. The international use of the U.S. dollar: An optimum currency area perspective. World Economy, 709-47.
