The euro has been in existence for seven years, and euro notes and coins have been in circulation for four years. Although it is still premature to evaluate the full implications of the only major currency established for more than a century, its successful introduction has already brought significant consequences for international finance. For example, a growing number of firms and sovereigns raise external finance issuing euro-denominated securities. The use of the euro as a currency for the settlement or invoicing of international trade transactions has also shown a notable increase in recent years (ECB, 2005). There is concern that portfolio shifts from dollar-to euro-denominated assets, in particular, by central banks, could result in a sharp appreciation of the euro relative to the dollar. And a key question among politicians, academics, and the public is whether the euro will challenge or eventually displace the dollar as the leading international currency.
