14
Weak dollar, strong euro?
per cent in the early part of the transition period should produce a rise of about 25-133 per cent in the role of the euro compared with the DM, even with involvement of only a small core group. In the eventual steady state, a rise of 65-250 per cent in the size of the relevant economic base could be expected. That would expand the potential size of the currency’s role by 30-335 per cent. The DM, on most calculations, accounts for about 15 per cent of global financial assets in both private and official markets (table 7). Hence the postulated expansion of the economy underlying the key currency, from Germany to the EU, could produce a rise in the euro’s role to 20-30 per cent even if EMU included only the core countries. The share could rise as high as 65 if the entire EU were eventually involved. The midpoint of these ranges, 25 and 42.5 per cent, may provide rough indicators of the 7. C URRENCY S HARES IN G LOBAL FINANCE, 1996 (%)
Official Foreign Exchange Reserves (of which, Developing Countries)
Dollar 64.1 (63.5)
DM 15.9 (15.6)
All EU* 21.2 (21.9)
Yen 7.5 (8.3)
Foreign Holdings of Bank Deposits
47.5
18.4
42.5
4.2
International Security Issues (1990-95)
38.8
na
40.6
20.6
Developing Countries’3 Debt
50.0
na
16.1
18.0
Denomination of World Exports (1992) 47.6
15.3
33.5
4.8
Foreign Exchange Market Turnover
42.0
19.0
28.0**
37.9 (50.0)
15.5 n.a.
All International Private Assets§ (excluding intra-EU holdings)
32.0 (10.0)
12.0 12.4 (18.0)
* Includes intra-EU holdings so considerably overstates consolidated EU position (and hence understates dollar and yen positions), except in final line. ** Includes only DM, sterling and French franc. § Includes international bonds, cross-border bank liabilities to non-banks, euro currency liabilities to domestic non-banks and euronotes.
S OURCE: BIS, IMF