This paper seeks to address the following question: will euro become a dominant global currency? The narrowing gap between euro and the U.S. dollar stated a discussion about a possibility of euro taking the dominant position in both trading and reserves markets. In order to grasp the significant shifts in the demand for euro and dollar the scope of this analysis is the period from 1999 to 2009. Nowadays, the U.S. dollar is the most widely used dominant global since it had overtaken pound sterling before 1945 [1] . However currently, in the post-crisis economic environment and particularly considering weaker American economy the leading position of dollar is increasingly questioned by many countries. In the first section of this paper the background of the declining trend of the U.S. dollar position is described. This trend had started before the world crisis 2007-2008. This fact is correlated with the introduction of euro in the world currency market in 1999 [2] . The second section of this work explains and assesses the current position of euro vis-a-vis dollar and presents and analyzes the medium and long-term perspectives for strengthening the euro's position in trade and as a reserve currency. It also presents alternative scenarios of solutions for the declining dollar. Furthermore, large economies like China want an increased use of Special Drawing Rights (SDRs) [3] and a move away from the U.S. dollar, while the Trade and Development Report (2009) [4] by United Nations in Geneva calls for a creation of a single international currency. The purpose of the last section is to summarize the paper and to answer the research question.
The introduction of the euro in 1999 brought a new currency challenger to the U.S. dollar. It is quite clear that the dollar remains the main reserve and transaction currency used by the majority of the countries. Nevertheless, as Alan Greenspan pointed out it is "absolutely conceivable that the euro will replace the dollar as reserve currency, or will be traded as an equally important reserve currency" [5] and therefore should not be underestimated. A world and, in this case, an international currency is defined as a currency in which the vast majority of international transactions take place and which serves as the world's primary reserve currency. [6] A decade later it is possible to examine the effects and the pressure on dollar by looking at relative presence and weight of euro in the international markets.
The European Central Bank's (ECB) primary objective of stable inflation made it possible for euro, right after its introduction, to recommend itself as a prominent and stable currency and allowed the ECB to consolidate its credibility to the investors worldwide from the very beginning. Introduction had created the depth and liquidity of euro financial markets thus attracting international investment and borrowing already in the early 2000s. The international success of euro during its first years was striking but it is said to be mostly due to involvement of non-euro zone European countries, i.e. the UK, that were closely engaged and could not lose the trade with euro zone states. Nonetheless, half of the European trade and 25% of foreign exchange transactions were conducted in euros. The U.S. dollar at the same time "has depreciated very markedly against the currencies of two of its major trading partners, Canada (27 percent) and the euro area (27 percent)" since its peak in February 2002. [7] Despite the fact that the continuous dollar depreciation did not make euro a more attractive trading currency, it did help it to grow and gain some grounds on the international arena. Year 2003 saw non-Japan Asia getting rid of $133 billion of foreign exchange reserves and turning to euro, which already then was referred to as a strong currency. A substantial fall in demand for the U.S. dollar occurred since 1999 and during the latest financial crisis. In sum, for all IMF countries diversification (a strategy designed to reduce the risk exposure to a change in exchange rates and economic conditions) accounted for a 3.4% decrease in reserve dollar holdings and a 6% increase in euro reserve holdings from 1999 to 2002. Developed countries, mostly those within the European Union, were seen to undertake a sudden and direct approach expanding their euro currency possessions by 6.4% in one year while the majority of the developing world underwent a slightly more cautionary shift, increase of 2.7% from in 1999 to 2002. [8]
Financial market downturn in the middle of 2008 resulted in investors pursuing the dollar-denominated assets which led to a subsequent small dollar appreciation against the euro making dollar the safest currency of all. Foreign exchange markets experienced a large contraction in overall transactions with derivatives markets suffering the most, a decrease of $116trillion from 2007. Euro's share in OTC interest rate traded derivates and OTC foreign exchange derivates increased from 35.6% to 37% and from 37.1% to 42.1% respectively while dollar remained stable at 80%. [9]
The global market in Asset-Backed Securities is still ruled by the U.S. with 67.9% of the total issuance compared to only 10.6% of Euro zone. Nonetheless, "The share of the euro in international ABS issuance doubled from around 30% on average during the years 2006-08 to almost 60% in the last quarter of 2008, against the background of very severe disruptions to the functioning of the ABS market in the course of 2008." [10] Figures provide that 85.4% of all the securities were issued in national currencies; therefore, due to the American dominant position dollar is still enjoying a considerable influence on the investors' preferences even in crisis times.
The share of foreign currency reserves denominated in euro in 2008 has also increased from 23.1% in 1999 to 25.3% in 2007 though dollar still accounts for 64% of total world reserves. [11] Dollar is preferred by countries, what is not quite justified as the U.S. currency has been constantly losing its value for the past year. On the other hand, it can be said that undisputable dominance of dollar, which has been in place since the Bretton Woods era, is gradually going away with euro taking dollar's position on central banks accounts with China and Russia being the prime buyers.
International euro-denominated securities saw a large increase in total stock outstanding since the euro introduction and by 2008 accounted for 32.2% out of total $9.6 trillion up from 20% in 1999. Dollar's share steadily decreased to 44.2% in 2008 down from 49% at the start of the EMU. [12] The crisis has also affected the issuance of dollar-denominated securities more than those issued in euros as in 2008 $180 billion worth were issued in euros and only $112 billion in dollars. However, internationally the amount of securities held by non-residents in dollars was still larger than those in euros as of 2008.
Due to the fact that European equity markets remain smaller than those in US euro is not yet able to establish as currency number one itself. The American equity market capitalization stood at $9.4 trillion, while EU's was just $5.8 trillion in 2008. [13] European equity markets are said to develop much faster than their American counterparts, it will take some time for the EU markets to narrow the considerable gap. Furthermore, the two main financial capitals of the world, London and New York, are not part of the Euro zone and therefore cannot help euro in attaining the international currency status.
Euro bond markets have shown a significant progress since their establishment, moving from $500 billion worth in 1999 to over $3 trillion in mid 2008, yet there are not performing at its full potential after being severely hit by the financial crisis. According to the ECB, the amount outstanding of international bonds and notes denominated in euro decreased in the second half of 2008 though mainly as a result of a financial turmoil that brought down the total amount of international debt securities to $9.6 trillion in the end of 2008. "This decline in amounts outstanding was broadly symmetric across the major currencies" [14] meaning that both rival currencies suffered nearly identical setbacks in developing their dominance.
Out of many solutions to the economic crisis one might be an introduction of a new international currency, which could serve as an alternative to the feeble position of the U.S. dollar. In March of 2009, China challenged the dominant power of the US dollar by proposing a replacement of the world's main reserve currency [15] . Such audacious proposal, made by the central bank governor Zhou Xiaochuan, is based on the view that the prevailing role of the dollar in the recent sweeping recession, together with the disproportionate amounts of dollar securities held in central banks worldwide, can destabilize the financial development of most emerging countries. Xiaochuan argued that "moving to a reserve currency that belongs to no individual nation would make it easier for all nations to manage their economies better" [16] . The expansion and full implementation of Special Drawing Rights (SDR) is considered to be of main concern in this situation. SDR is an international reserve asset created by the International Monetary Fund (IMF) in 1969 [17] . Main purpose of this quasi-currency was to alleviate the shortage of US dollar and gold reserves in the expansion of world trade and the prevalent financial development at that time. As of 1999, the SDR is compounded of US dollar, Euro, Japanese yen and UK pound currency exchange rate valuations [18] . The significant importance of the SDR is that it escapes the threat of sudden devaluation of one currency by compiling all four currencies in one basket. On the other hand, the SDR has a few pitfalls that can considerably deteriorate its optimal value. The weakest point of the SDR is that it includes currencies (except Japanese yen) that have undergone several fluctuations in their values as the reserve currencies. Instead, the inclusion of Chinese yuan or Swiss franc might improve the benchmark of the SDR value since they proved to be more or less stable throughout the recession [19] . Nevertheless, a sovereign reserve currency like SDR, steered by a global institution, could not only eliminate the inherent risks of credit-based sovereign currency, but also manage the global liquidity and enhance the future crisis management capability [20] .
If one is to predict the future position of euro in the world economy, it is important to consider the currently observable trends and perspectives of the European Union as well as strategic secotors of the international currency markets. Firstly, euro has an advatege over dollar as the Euro Area (the EA) has better persectives for future development. In a long-run, there are possible enlargments of the European Union (the EU) or the EA by the major economies like Turkey or the UK [21] , what would allow euro to compete with dollar on more equal basis. Currently, there are 11 EU countries that are members of the EU but the members of the EMU (European Monetary Union). If they join the EA, some economists belive that the euro will overtake the dolar within a few years later. Secondly, in a medium-term perspective euro can start to win dollar as the oil pricing currency. This claim can be supported by the fact, that recently euro has gained Iran as „a euro-denominated oil pricing standard, or oil "marker" as it is called in the industry" [22] . Iran is a country with the third biggest proven oil reserves and the second biggest among OPEC [23] , thus Iranian taking euro as the oil pricing currency is a significant gain for the euro's position in the oil trade market. Moreover, the depriciating dollar with the lower U.S. oil consumption [24] is no more an attractive oil trade currency, especially for the countries with the peg fixed to dollar. It creates a danger of overheating, „particularly in countries with exchange rate regimes closely linked to the depreciating U.S. dollar" [25] .
The current trends of the euro currency show an incresing significance of euro as most of the central banks increase their foreing reserves in favor of euro, by decreasing their dolar reserves. As Steven Englander, a former Federal Reserve researcher, who is now the chief U.S. currency strategist at Barclays in New York, pointed out: "Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it, It looks like they are really backing away from the dollar" [26] . Taking the dolar place as a reserve currency can be very chalenging for the euro because this would imply that the European Union should take Americas place in international markets. Although benefitial, this is chalenging and very responsible task. In addition, in order to gain the world trust, the EU might have to become a new political leader instead of the USA, what is still unrealistic considering the current potential of the EA. This can be also very hard for the European Union because she is composed of 27 independent countries that take decisions considering their own good as much as the good of the union. It is clear that USA have advantage here because its a single federal goverment with a much more efficient decision making proceses. Finally, the ECB would need to sustain and assure a very stable curency level for sigificantly long time. Looking thrugh the prism of the r the economic problems of the EA countries like Greece or Portugal it would be very difficult to achive. Moreover, there is present a shift from dollar towards diversification, what is also expressed by the gold pice, which is rising very fast as it is percived as a safe overnight substitute for dollar [27] .
