This essay is based on the 1997-98 Frank D. Graham Memorial Lecture, which I had the honor of presenting at Princeton University on April 9, 1998. Frank Graham was deeply concerned with the interplay among national policy sovereignty, exchange-rate regimes, and price-level stability. Today, the...

This essay makes the assumption that the euro is coming and seeks to understand the implications of its arrival for the US dolar. In particular, it investigates the motives for, and implications of, shifts of funds by international portfolio managers in response to the euro's introduction.

The crisis of the European exchange-rate system (ERM) in 1992093 was a critical event in the post- Bretton Woods history of the international monetary system. A full understanding of the causes, origins, and implications of the ERM breakdown can privide policy lessons that are particularly...