Greenspan says euro could replace U.S. dollar as reserve currency

Former U.S. Federal Reserve chairman Alan Greenspan says it's possible that the euro could replace the U.S. dollar as the reserve currency of choice.

According to an advance copy of an interview to be published in Thursday's edition of the German magazine Stern, Greenspan said the dollar is still slightly ahead in its use as a reserve currency, but added that "it doesn't have all that much of an advantage" anymore.

The euro has been soaring against the U.S. currency in recent weeks, hitting all-time high of $1.3927 last week as the dollar has fallen on turbulent market conditions stemming from the ongoing U.S. subprime crisis. The Fed meets this week and is expected to lower its benchmark interest rate from the current 5.25 per cent.

Greenspan said that at the end of 2006, some 25 per cent of all currency reserves held by central banks were held in euros, compared to 66 per cent for the U.S. dollar.

In terms of being used as a payment for cross-border transactions, the euro is trailing the dollar only slightly with 39 per cent to 43 per cent.

Greenspan said the European Central Bank has become "a serious factor in the global economy."

He said the increased usage of the euro as a reserve currency has led to a lowering of interest rates in the euro zone, which has "without any doubt contributed to the current economic growth."
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Last updated 19/09/2007

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