ABSTRACT
The creation of the Economic and Monetary Union (EMU) and of its currency, the euro, is a historic decision, not only for the European Union (EU) but also for the world at large. The sheer size and economic importance of the countries involved is bound to alter the character of the international monetary system. Historically, there is a positive correlation between relative size and dominant-currency status. On this score the formation of EMU will give the euro a big push in competing against the dollar for the position of dominant currency. On the other hand, the euro will be issued by a new central bank representing a group of countries that have yet not achieved political unification. Historically, political unification tends to occur before monetary unification; there is no precedent for a monetary union of the size and economic importance of EMU. Thus, the benefits from a large economic and financial area will be partly offset by relatively untested institutions.
