Prospects for the Euro: Will Reserve Holdings Shift in Its Favour?

The determinants of Central Bank reserve holdings of major hard currencies are analyzed for the pre-Euro and the post-Euro periods. Real economic variables, financial variables, and developments in key Asian markets which are likely to possess greater clout in the future are used in the estimation process. Developments in oil markets are also considered while evaluating the future global importance of the Euro. Simulations are undertaken to trace possible future scenarios for the Euro and the Dollar. The simulations indicate that a rise in Asian emerging market share of world output will work towards preserving Dollar dominance.