A Perspective on the Future Dollar-Euro Exchange Rate: Implications for the Peripheral Mediterranean Countries - Economic Research Forum (ERF)

This study examines some of the factors that may constitute the main determinants of the dollar-euro exchange rate. The implications of the introduction of the single currency in Europe on Mediterranean central banks reserves and foreign external liabilities are examined, along with trade and capital flows, and exchange rate policies. It is shown that Mediterranean central banks will have to hold major portions of their foreign exchange reserves in euros. Also, a Mediterranean currency peg to the euro, or to a basket of currencies where the euro is allocated the highest weight will be important in reducing financial and trade transaction costs. It is also hypothesized that Mediterranean foreign debts will eventually have to be converted to euros as well.

ملخص

تبحث هذه الدراسة بعض العوامل التى قد تشكل المحددات الرئيسية لسعر الصرف بين الدولار واليورو. وتتناول الدراسة تأثير تطبيق عملة موحدة فى اوربا على احتياطيات البنوك المركزية والتزامات العملة الاجنبية فى دول البحر المتوسط، الى جانب تدفقات التجارة ورؤوس الاموال، وسياسات سعر الصرف. تبين الدراسة انه سيكون على البنوك المركزية فى دول البحر المتوسط ان تحتفظ بنسبة كبيرة من احتياطاتها من النقد الاجنبى لليورو. كما ان ارتباط اسعار صرف تلك الدول باليورو، او بسلة من العملات يكون لليورو فيها الوزن الاكبر سيكون له اثر كبير فى خفض التكاليف المالية وتكاليف المعاملات. تناقش الورقة ايضا ان الديون الخارجية لدول البحر المتوسط ينبغى فى نهاية الامر تحويلها الى ديون باليورو ايضا

Research Fellows

Simon Neaime

Professor of Economics and Director Institute of Financial Economics, American University of Beirut


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