THE EURO VERSUS THE DOLLAR:
WILL THERE BE A STRUGGLE FOR DOMINANCE?
C. Fred Bergsten
Director, Institute for International Economics
Presented to a Roundtable at the
Annual Meeting of the American Economic Association
Atlanta
January 4, 2002
The Euro to Date
I am delighted to substitute for Robert Mundell on this panel since he and I are among the
very few economists from this side of the Atlantic who have argued, from the outset of the
debate over European monetary union, that the creation of the euro was a good idea, would
happen on time, and would produce a strong currency that would challenge the dollar for global
supremacy. Mundell in fact began making that case as early as 1969, when he called the currency
the “europa.” On the eve of the launch of the virtual euro in 1998, he wrote:
The introduction of the euro will represent the most dramatic change
in the international monetary system since President Nixon took the
dollar off gold in 1971 [and when] the era of flexible exchange rates
began…the euro is likely to challenge the position of the dollar [and
hence] this may be the most important event in the history of the
international monetary system since the dollar took over from the
pound the role of dominant currency in World War I (Mundell 1998).
I made a similar argument, and in fact used very similar words, in analyzing the outlook
for the international role of the euro a year earlier (Bergsten 1997a, 1997b). After three years of
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experience with the virtual euro, and at the dawn of the creation of the physical euro, I see no
reason to alter that assessment.
Indeed, the euro has already been a huge success internationally as well as within Europe
(which I will not address in this paper, as success on that front is so widely agreed). It already
became the most widely used currency for international bond flotations during its first year of
existence (Mussa 2001). From the start of 1999 through September 2001, the latest date for
which we have