The full text is attached of an pertinent speech on 'The
International Role of the Euro' which was made by Helmut Schieber, a
member of the Directorate of the Deutsche Bundesbank at the 'Euromoney'
conference held at Frankfurt on 21 September 1998.
He discussed the role of the Euro as a reserve currency, as an
investment currency and as a transaction currency and then reviewed
important considerations affecting a satisfactory introduction of the
Among the points Herr Schieber made were:
* 'World foreign exchange reserves amounted to around US$ 1.614
billion at the end of March 1998 - the share of the US dollar roughly
61%, the D-Mark roughly 13% [and] European currencies (including
balances in private ECU, but excluding Swiss franc) together a share of
However, a substantial proportion of the reserve assets denominated
in D-Mark is held by European central banks which will become part of
the ESCB upon entry into Stage Three of EMU. All assets that are
denominated in national currencies of the future euro area countries
will be converted into euro assets and will lose their character as
currency reserves for central banks inside the euro area.
Therefore, the share of euro-dominated international currency
reserves could initially be lower than the present market share of all
EMU currencies put together. The share of US dollar-denominated
international currency reserves might thus rise to some 75%.'
* 'As an investment currency, the US dollar outweighs any other
currency. The share of the US dollar in the international market for
bonds and notes amounts to 40%, while the D-Mark accounts for 10%.
But the currencies of all EU member countries, taken together, make up
one-third of this market.
Different national regulations will continue to hamper the complete
integration of financial markets in Europe and that the low stock
capitalisation of European firms is likely to guarantee the
of the US stock market - at least over the medium term.
Furthermore, the full realisation of the euro's potential as an
investment currency crucially hinges on the participation of Great
Britain in EMU which, unfortunately, is still not certain.'
* 'The euro's role as a transaction currency in foreign trade and in
foreign exchange markets. According to estimates, roughly 50% of
exports are settled in US dollars, some 15% in D-Mark and around 6%
in French francs and pound sterling.
Since a relatively large share of what is now foreign trade will become
internal trade under EMU, the euro's role as an international invoicing
currency will be relatively limited - at least immediately following the
introduction of the new currency.
The importance of the D-Mark, however, hinges crucially on its role as a
vehicle currency (a connecting link for bilateral transactions). Since
foreign reserve transactions between euro countries will cease to exist,
the importance of the euro as a vehicle currency is likely to be much
smaller than the current role of the respective national currencies put
* 'The main risk to the stability of the euro is that, whereas the
responsibility for monetary policy will be transferred to a
supranational institution, the responsibilities for the areas of
economic and structural policy as well as wage and social policies will
remain at the national level.'
* 'Most EMU countries are still a long way from the medium-term
objective of a balanced budget. Some countries were able to fulfil the
Maastricht criterion of a deficit not exceeding 3% of GDP only by
resorting to substantial one-off measures. Even more important, the
excessive stock of public debt harbours the potential of conflicts with
* 'In order to prevent these potential conflicts from arising, it
will be necessary to implement the Stability and Growth Pact in a
determined manner. The role of the euro as an investment currency and,
as a consequence, its international importance will hinge decisively on
compliance with the requirements of this pact.
I am concerned about the fact that some of the future EMU countries seem
to be allowing their deficit ratios to deteriorate even further - at
least in structural terms - to say they do not use the 'stability
dividend' to bring down their public debt but to buffer painful
* 'Another threat to internal stability in the euro area is the high
level of unemployment in Europe - and not just because it could
undermine the social consensus in EMU member states. There have been
repeated suggestions that a weak euro could solve Europe's serious
These suggestions are extremely dangerous, as they ignore the root
causes of our unemployment problem and could potentially jeopardise
acceptance of the euro. The high level of unemployment in Europe is
largely structural and can only be overcome through more flexibility in
* 'The flexibility of the labour markets and the problems of public
finance including the social security systems will be the Achilles'
* 'Economic size does not guarantee the international success of a
currency. The success of the euro as an international currency will
depend first and foremost on two factors: the determination of efforts
to eliminate the market distortions prevailing in Europe, and the
willingness of European governments to subordinate fiscal policies to
the goal of macro-economic stability in the euro area as a whole.'