Friday, December 23, 2005

Will the Euro Eventually Surpass the Dollar
as Leading International Reserve Currency?
Menzie Chinn and Jeffrey Frankel
December 2005

A econometric Working paper which is relatively easy to read and evaluate. The basic question asked is whether the Euro with eventually surpass the Dollar as the common international Currency. The authors believe the EU must become a larger Production factor than the U.S. Economy, and/or real depreciation of the Dollar continues. It will not be swift in any Case, with Year 2022 cited as changeover Year if it happens. Twelve Countries trade currently solely in the Euro, and more are expected to convert. The Problem centers on the issue the sustainability of Current Account imbalances of the G7 nations: this Paper written to be given at a Conference considering the issue.

The Authors of the Paper found that the international debt situation had little impact upon the data skew, but the willingness of the Central Banks to maintain a high volume of Reserves as dollar stocks was vital, the U.S. Government needing absorption of the Dollar stocks to ensure low Interest rates for huge Government debt. The Later necessary to maintain the long-term loss of Tax revenues in the magnitudes to enjoin political support for a Federal program matrix highly disliked by American Voters. lgl

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