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<p>This paper analyzes the volatility of the <i>big five</i> international reserve currencies (pound sterling, U.S. dollar, Japanese yen, Chinese renminbi, and euro). The study employs GARCH models to compare the unconditional variance of its returns. The purpose is to evaluate if the leadership of the U.S. dollar may be replaced by one of the other currencies. The U.S. dollar displays greater volatility following the collapse of the Bretton Woods system. The Chinese renminbi and the Japanese yen also showed high volatility. The most stable currency is the euro, followed by the pound sterling. This result suggests two things: (i) despite BREXIT, the pound sterling remains a stable currency, and (ii) the low volatility of the euro could mean that soon it can rival or even replace the U.S. dollar as the leading international reserve currency.</p>

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Will the euro replace the U.S. dollar as the leading international currency? A volatility analysis

  • 期刊论文

  • 发表日期：

    2025年2月20日

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  • António Portugal Duarte,
  • Fátima Sol Murta,
  • Nuno Baetas da Silva

摘要

This paper analyzes the volatility of the big five international reserve currencies (pound sterling, U.S. dollar, Japanese yen, Chinese renminbi, and euro). The study employs GARCH models to compare the unconditional variance of its returns. The purpose is to evaluate if the leadership of the U.S. dollar may be replaced by one of the other currencies. The U.S. dollar displays greater volatility following the collapse of the Bretton Woods system. The Chinese renminbi and the Japanese yen also showed high volatility. The most stable currency is the euro, followed by the pound sterling. This result suggests two things: (i) despite BREXIT, the pound sterling remains a stable currency, and (ii) the low volatility of the euro could mean that soon it can rival or even replace the U.S. dollar as the leading international reserve currency.