Euro may challenge 'dollar dominance'

Euro may challenge 'dollar dominance'

JAKARTA (JP): The European Monetary Union (EMU)'s new currency
could challenge the dominance of the U.S. dollar, a European
economist said.

Chief Economist of Germany's Deutsche Bank Group, Norbert
Walter, said here yesterday the proposed European single currency
called euro would shift the world's orientation away from the
United States dollar.

"The establishment of euro will create a new regime outside of
the U.S. dollar, which will alter the close relationship between
other currencies such as those in Asia with the U.S. dollar,"
Walter said at a press conference.

"This will reduce the exchange rate volatility to the
currencies," he said.

The euro, which was expected to gain strength in 2005, would
affect financial institutions around the world, he said.

He expected the currency reserves held in euro would reach 30
percent by 2005, compared to the current reserves in the European
currencies of about 20 percent.

He estimated the world's currency reserves held in the U.S.
dollar would be 50 percent in 2005, down from 60 percent at
present.

The European Monetary Union is set to begin the first phase of
the currency changeover to euro in early May next year, by
selecting its member states and establishing the European Central
Bank (ECB).

On Jan. 4, 1999, EMU will begin fixing conversion rates and
ECB will conduct transactions in euro, but the changeover will
not be completed until the end of 2001.

Germany, France, the Netherlands, Austria, Belgium,
Luxembourg, Ireland and Finland had agreed to become founding
members of the European Monetary Union, he said.

Portugal and Spain were possible candidates, while Sweden,
Denmark, and the United Kingdom were so far not willing to
participate. Greece did not fit the criteria, he said.

The conversion would probably be based on the EMU's Exchange
Rate Mechanism at the time of the changeover, he said.

The probability the changeover to euro would work was about
two-thirds, he said.

Walter said a single currency for European countries would
boost the bilateral trade relationship between Europe and
Southeast Asia.

"If you have a foothold on one of the countries in the EMU,
you'll have a foothold on all European countries," he said. (das)