| The single currency of eleven EU (the European Union) countries--- euro came into being on Janurary 1, 1999. It is not only an important further step in European integration, it will also have far-reaching implications for the world economy and the international monetary system. As a national and international currency as well, euro has always been on the core of dispute from academic and practical classes. While the systemic implications of the introduction of the euro have been documented elsewhere, until now the analysis of the implications of the introduction on China has been only rarely presented. This paper presents a general analysis of euro potentialities as an international currency and then the implications on China. The structure of this paper is as follows. Chapter 1 lays the basis for further analysis by presenting some basic information relating to euro launch. Considering the impressing exchange rate of euro in the past 9 months, which surely surprised many optimists of euro, chapter 2 discusses some of the causes and reviews the monitoring measurements by the European Central Bank. Chapter 3 concerns the use of euro as an invoicing currency, a vehicle currency, an exchange rate anchor and a reserve currency, and. the developing and deepening of European capital market motivated by the single currency. Chapter 4 analyzes euro抯 impact on China, mainly in the area of import and export, foreign investment, debt and foreign reserve and Chinese banks. Some practical advice is also presented in this chapter. Given the various uncertainties connected with euro, it is unlikely to conclude definitely and quantitatively. Most conclusions in this paper are only qualitative and suggestive. Main conclusions are: 1. The European Economic and Monetary Union (EMU) is not only an economic union but also a political operation. Euro was therefore created for the purpose of improving the operation of the Single Market, as well as making progress on the building of the European political siructure to challenge the orld Pop?of USA. 2. The fluctuation of the exchange rate of euro in the past ten months was caused mainly by several other external factors, instead of euro itself. 3. The size of the euro area, the stability orientation of its policy framework and the integration of its financial markets imply that the euro will likely become a major world currency and therefore probably challenge the prominent role of US-dollar in the current international financial framework. However this will not happen in a short period of time and depends on various factors. In addition, euro is still facing a lot of challenges and uncertainties, mainly from the rigid labor market of EU, lack of political integration of EU and the accession of new countries to the EU and eventually to the euro area. 4. The launch of euro will affect China in a number of positive and negative ways in several areas. Given the existing problems in these areas, it is likely to suffer more than benefit from the introduction of euro in the near term. However China can also make good use of this big event in international financial system to promote reforms and get more involved in global business, if it is well prepared. The introduction of euro brings us not only a new currency, it also challenges the traditional international financial theory, by which currency is a symbo... |
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