Developing the Ecu Markets: Perspectives on Financial Innovation

Abstract

The European Currency Unit (ECU) was officially introduced in March 1979 and has joined the ranks of innovative financial products that are rapidly appearing. The purpose of the paper is to explore the properties of the ECU and analyze those characteristics of the ECU, and products denominated in ECU, that offer value-added. Changes in communications and information technology, changes in the regulatory climate, and changes in the macroeconomic environment have generally encouraged recent financial innovations. We argue that the ECU has gained an edge on its component currencies because of its portfolio properties, its role in reducing transaction costs, the role of the European Monetary System, and trading factors peculiar to the ECU. Private participants should continue to gravitate toward the ECU as a useful vehicle to fulfill the services of money.