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AbstractAfter nearly a century of dominance of the international monetary system, has the US dollar finally met its match in the euro? When Europe's economic and monetary union (EMU) came into existence in 1999, many observers predicted that the euro would soon join America's greenback at the peak of global finance. Achievements, however, have fallen short of aspiration. After an initial spurt of enthusiasm, international use of the euro actually appears now to be levelling off, even stalling, and so far seems confined largely to a limited range of market sectors and regions. The euro has successfully attained a place second only to the greenback – but it remains, and is likely to remain, a quite distant second without a determined effort by EMU authorities to promote their money's global role. The temptation will surely be great. In practical terms, it is difficult to imagine that EMU authorities will refrain entirely from trying to promote a greater role for the euro. But that, in turn, could turn out to be a recipe for discord with the United States, which has never made any secret of its commitment to preserving the greenback's worldwide dominance. A struggle for monetary leadership could become a source of sustained tensions in US–European relations. Fortunately, however, there seems relatively little risk of a destabilizing escalation into outright geopolitical conflict.

After nearly a century of dominance of the international monetary system, has the US dollar finally met its match in the euro? When Europe's Economic and Monetary Union (EMU) came into existence in 1999, many observers predicted that the euro would soon join America's greenback at the peak of global finance. Achievements, however, have fallen short of aspirations. After an initial spurt of enthusiasm, international use of the euro now actually appears to be levelling off, even stalling, and so far seems confined largely to a limited range of market sectors and regions. The euro has successfully attained a place second only to the greenback, but it remains, and is likely to remain, a quite distant second without a determined effort by EMU authorities to promote their money's global role. The temptation will surely be great. In practical terms, it is difficult to imagine that EMU authorities will refrain entirely from trying to promote a greater role for the euro. But that, in turn, could be a recipe for discord with the US, which has never made any secret of its commitment to preserving the greenback's world-wide dominance. A struggle for monetary leadership could become a source of sustained tensions in US-European relations. Fortunately, however, there seems relatively little risk of a destabilising escalation into outright geopolitical conflict.

This essay looks at the dynamics of power and rule setting in the international monetary system. I begin with a brief discussion of the meaning of power in international monetary relations, distinguishing between two critical dimensions of monetary power, autonomy and influence. Major developments have led to a greater diffusion of power in monetary affairs, both among states and between states and societal actors. But the diffusion of power has been mainly in the dimension of autonomy, rather than influence, meaning that leadership in the system has been dispersed rather than relocated – a pattern of change in the geopolitics of finance that might be called leaderless diffusion. The pattern of leaderless diffusion, in turn, is generating greater ambiguity in prevailing governance structures. Rule setting in monetary relations increasingly relies not on negotiations among a few powerful states but, rather, on the evolution of custom and usage among growing numbers of autonomous agents. Impacts on governance structures can be seen at two levels: the individual state and the global system. At the state level, the dispersion of power compels governments to rethink their commitment to national monetary sovereignty. At the systemic level, it compounds the difficulties of bargaining on monetary issues. More and more, formal rules are being superceded by informal norms that emerge, like common law, not from legislation or statutes but from everyday conduct and social convention.

John Ravenhill and Richard Higgott and Matthew Watson, in commenting on my earlier article, accuse me of distortion, favoritism, and making the quality of debate of RIPE worse rather than better. Their criticisms, I suggest, reflect misunderstanding and are not supported by textual evidence. Adapted from the source document.

The purpose of this chapter is to evaluate the experience of the Euro Area to date in a broad global context. The central question is: How has the creation of the euro affected the power of participating states to cope with external challenges? Three broad issues are explored. First, how well equipped is the Euro Area to deal with any threat of financial instability? Second, can the euro compete effectively with America's dollar in global markets? And third, does membership in the Euro Area enable European Union governments to play a more influential role in international financial forums? Overall, the chapter concludes, the project has failed to live up to expectations. Though exposure to exchange-rate disturbances has been reduced by the merger of currencies, the Euro Area remains largely a passive participant in global payments developments and, if anything, has become even more vulnerable to threats of financial instability. Likewise, the euro has failed to mount a significant challenge to the dollar and the bloc continues to punch below its weight in monetary diplomacy.