Currency competition between the dollar and euro: Evidence from exchange rate behaviors

Abstract

Using a simple numeraire currency-independent metric to measure distances between currencies, it is found that for most of the 25 sampled floating currencies, excluding the US dollar and euro, there has been a noticeable decrease in the ratio of a currency's distance from the euro to its distance from the dollar during the period from 1999 to 2013. Evidence that exchange risk has increased substantially is also found for dollar-based agents, while it has decreased for euro-based agents. Overall, the findings indicate that the influence of the euro, relative to the dollar, on other currencies has increased since its introduction. (C) 2014 Elsevier Inc. All rights reserved.