Will Europe suffer the Swiss Syndrome? What impact on the European and U.S. economies may diversification of central bank reserves into euros have?

By , Permalink

International Economy Diversification of central bank reserves into larger holdings of euros is much in the news these days. Quite apart from the widening U.S. trade and payments deficit, the Iraq war has created a backlash that has led some Arab and Islamic politicians to urge OPEC countries to price and sell their oil in euros and shift their central bank reserves out of their present heavy weighting in dollars. If this were the 1960s, central banks throughout the world would be cashing in their dollar inflows for gold. But since the United States went off gold in 1971, a built-in market for U.S. Treasury bills has emerged as the only practical alternative to gold. The question is whether the central bank market ...