The currency denomination of world trade after European Monetary Union

This paper addresses the question of which role the currencies of the three major economies in the world might play in global trade after European economic and monetary union. Based on historical data about trade flows and invoicing practices as well as "G-3" economies' inflation records, it is argued that, most likely, the U.S. dollar will maintain its dominant role in trade denomination far quite an extended period of time after the European changeover. From the data discussed, the euro will immediately take an the role of the second most important trade vehicle currency, well in advance of the Japanese yen. Due to network effects, the euro is likely to gradually expand its share in global trade invoicing thereafter, primarily at the expense of the dollar in Central and Eastern Europe, the Mediterranean, and, perhaps, also in Asia. (C) 1998 Academic Press.