The Dollar, the Euro and the Role of Emerging Economies

Since the collapse of the Bretton Woods Global International System in 1971, the world economy has experienced significant currency volatility. The major economies of the world have addressed such volatility differently. The European Union (EU) has chosen to follow a monetary union and introduced successfully a new currency. The USA has paid less attention to the fluctuations of the dollar and has pursued an independent monetary policy to promote national economic stability. Japan has seen its currency appreciate significantly. This paper argues that while trade and growth across the globe are doing well, financial developments are intensifying the competition between the US dollar and the euro. We also study the role of emerging economies in this competition between the dollar and the euro.