The Impact Of The Euro On International Financial Markets

Having gotten over various hurdles since its initial conception, the euro finally entered into circulation. The euro managed to unify the twelve member states'currencies and to become the only legal tender in this region. This paper aims at analyzing the impact of the new currency, euro, on the international financial markets. In the past half a century, scholars and researchers around the world have put forward and developed theories such as The Theory of Optimum Currency Areas, Theories on the Reform of International Monetary System and Theories on the Integration of Financial Markets. The advent of Euro provides a good opportunity to verify these theories.Becoming an international money is one of the most critical premises for a currency to impose considerable influences on the global financial markets This paper starts from a discussion on the euro's role as a new type of international money, its position in the world, and its impact on many countries'choice of foreign exchange regimes and foreign reserve structures. The euro's role in the International Monetary System directly determines its impact on the depth, breadth and elasticity of international financial markets. In the long run, the original tripillar constitution of international monetary system (the US dollar, the yen and the Deutsche Mark) will be replaced by a bipillar one, which only consists of the dollar and the euro. The euro is even likely to challenge the leadership of the dollar.Afterwards, the paper contributes a large proportion to elaborating the changes that the euro has brought to the international financial markets. In terms of the maturities of financial instruments traded in the market, the international financial markets can be divided into money market, foreign exchange market, bond market and stock market. This paper follows the above sequence in the discussion. The euro's impacts are firstly imposed on financial markets in Europe. The advent of the euro lays a solid foundation for a further integration of European financial markets and performs as a strong impetus. With the expanding size of the European market, the liquidity of instruments being traded has also been improved. The European financial market has an increasing influence on the world market, which starts to rival the US market. The great achievements of the economic union contribute to the fulfillment of a political union in the near future.In addition, this paper has independent chapters describing the euro's impact on global underground financial market as well as on the competition among main European financial centers for the leading position in this region. An integrated European market and a single currency also bring great convenience to money laundering activities and illegal capital movements. The lift of hurdles on capital movement and the increased complexity of financial markets add to the difficulties of financial...