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nicholas c garganas : international role of the euro address by mr nicholas c garganas, governor of the bank of greece, at the conference of the european commission “ europe, the mediterranean and the euro ”, athens, 4 february 2003. * * * introduction ladies and gentlemen it is a pleasure to participate in an event organised by the european commission. i would like to thank the commission for inviting me to address some of the basic considerations that confront the euro in its emergence as an international currency. let me begin by asking the question : “ how does a currency acquire the status of an international currency? ” this question is being asked more and more often as the euro takes on increasing importance in the global financial system. the interwar period was dominated by two currencies - the us dollar and the pound sterling - while the postwar world has been dominated by the us dollar. unlike the situation in national economies or monetary unions, where the currency used is determined by government decree, currencies are used internationally because of neither an act of parliament nor an act of god. rather the choice of currencies used for international transactions is mainly the result of invisible hand processes. currencies attain international status because they meet the various needs of foreign official institutions and foreign private parties more effectively than do other financial assets. what factors contribute to the use of a specific money as an international currency? why was the dutch guilder the dominant international currency in the 17th and 18th centuries, the british pound in the 19th and early 20th centuries, and the dollar since the end of the second world war? several factors are essential if a currency is to be used internationally. first and foremost, an international currency must be perceived as sound. to be acceptable, market participants must be willing to hold it as a store of value. this circumstance means that inflation in the country or monetary union issuing the currency must be low and stable relative to those of other currencies. inflation reduces the purchasing power of a currency, discouraging its use internationally. it also leads to exchange - rate depreciation and uncertainty. a necessary condition for the international use of a currency, therefore, is that a currency ’ s future value in terms of goods and services has to be perceived as predictable and stable. clearly, many currencies meet this test ; yet few emerge as international currencies. therefore, there must be - and there are - additional factors that help determine the internationalisation of a currency. one such factor