Academic journal article Journal of Economics & Management

The Euro as an International Currency in the Official Sector

Academic journal article Journal of Economics & Management

The Euro as an International Currency in the Official Sector

Article excerpt

Introduction

International position of international currencies including euro has been determined by the market and will be determined by the market in the future. Outside the territory of European Union euro can be used by the companies of different countries for the transactions inside these countries. In such situations euro is used as an international currency. Consequently, it is nationalized. Most economists claim that the world needs international currencies which function as money in private sphere as well as in official sphere. Private sector uses international currencies as currencies of invoices, price quotations, payments, exchange currency as well as the currency for financing and investment. Official sector uses them as reserve of currency, investment currency as well as the currency of reference. In official sector the level of international currencies use depends on political and economical significance of the country that issues the currency. The aim of this article is to present the evolution of euro significance in the public sector and to show the perspectives of the further internationalizing of the said currency.

1. International money's functions and conditions of its creation

In the subject literature international currency is defined in a various way. However, broad international use of the international currency in underlined. International currency is the currency used outside the country or the economic territory of the country issuing this currency1. The currency is understood as international when it is used in international transactions2. More precise definition is that international currency is the currency used by foreingners from outside the country issuing it in transactions with partners from the said country and with partners from other countries3. What is more, international currency has to fulfill classical money's functions, i.e. to be unit of account, medium of exchange as well as store of value. Traditionally, money's functions have their specificity depending whether they refer to private or official sector. Private sector includes use of euro by all the business (companies, banks and other financial institutions, public authorities and private citizens) functioning on the market. Official sector concerns mostly monetary authorities, i.e. mainly central banks4. The measure of international position of the currency is the use of the currency in:

* private sector: financing - earning means of finance, investment - storage of financial reserves, settlement currency - execution of effective payment regarding commercial contract, vehicle currency - execution of transaction in foreign currency concerning exchange in two different foreign currencies, quotation currency and invoicing currency - presenting prices and invoicing the supplies,

* in official sector: reserve currency, intervention currency and anchor currency5.

International status of currency is determined by the factors of structural character as well as macroeconomic stability of the country issuing the currency. Main factors of structural character are trade and production quantity as well as the magnitude of financial market of the country issuing the currency6. It should be emphasized that the greater participation of the country issuing the currency in the world production as well as in world trade, the better opportunities for the currency to be used by the foreign business as invoicing currency and settlement currency. Consequently, financial authorities of the third countries will use it as anchor currency reserve currency and intervention currency. Taking into account the magnitude of the financial market of the country issuing the currency, i.e. the sum of stock market capitalization, value of securities as well as bank assets. Attention should be paid to the fact that the bigger financial market the better possibilities for the currency of a given country to be used by foreign business as vehicle currency or for financing as well as for investment. …

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