Today, the international currency markets see skewed anomalies, where the dollar is the invoiced currency for 48 per cent of all global trade although it contributes only 23 per cent of the global GNP. Against this, the EU currencies account for just 31 per cent of international invoicing although the European Union countries have a much larger GNP.

US' status as a major trading partner of India may be wrested away by an unified Europe once the euro is introduced, with the euro currency emerging as the preferred invoiced currency for all trade with Europe. The dollar has been the preferred invoicing currency even for trade between India and Europeancountries on account of its price transparency, wide acceptability, liquidity, low transaction cost and stability.

But the importance of EU in India's external economy lies in the fact that not only is EU 15 India's largest trading partner, many large companies from these countries also have a considerable presence in this country. Post-liberalisation, many Indian companies have also gone on to raise short- amd long-term debt from the euro markets. The euro will therefore have major implications for India.

Today, trade betwen EU and India accounts for 22 per cent of India's external trade, while invoicing in EU currencies accounts for only 7.2 per cent of the total invoicing. In the changed scenario, EMU member states are likely to insist on settlement of business transactions in the euro. This demand for the euro as a settlement currency (as as also a reserve currency) will make it stronger against the rupee, which, in turn, will help Indian exports.

On the external debt front, 13 per cent of India'stotal debt of $92 billion that is denominated in European currencies today is expected to go up once the euro comes in to create a broader, deeper and more liquid market. Those with a natural hedge in the euro (in the form of export receivables or other forms of receivables) would find it beneficial to borrow in the euro at the lower rates of interest that it is likely to offer once the currency stabilises.

The hazards of invoicing in a different currency involves trade risk for both the buyer and the seller. With the introduction of the euro as the invoicing currency for countries like India, Brazil and UAE countries which are major trading partners of the EU, trade will become competitive as the exchange risk on one leg would be eliminated.

The demand for the euro in trade transactions is also likely to go up in Japan and the developing countries. Exports from the European Commission to these countries was at 5.8 per cent and 22 per cent of the EC's total exports in 1996, respectively. The report refersto global analysts' projections of $1 trillion taking place in favour of the euro as a result of portfolio restructuring after the advent of the euro.

Another major likely impact will be that the euro will co-exist with the dollar as a reserve currency of central banks on account of its large economic base and its potential for denomination of trade flows. As of today, the dollar is dominant, accounting for 65 per cent of international currency reserves, with the EU currencies coming a remote second with a 21 per cent share and yen accounting for 8.1 per cent.

Here too the dominance is skewed heavily in favour of the dollar, where half the stock of debt issued by developing countries and 37 per cent of total international debt securities is dollar-denominated. Against this, the corresponding figures for securiuties denominated in EU currencies is just 176 per cent and 24 per cent. All this seems set to change with the advent of the euro.

Interestingly, Europhiles draw analogies between the likelychallenge poised by the euro to the dollar and the earlier displacement of the sterling by the dollar, which had led to the elimination of the political and economic hegemony of Britain.