Many euro-area firms and politicians have debated the euro reserve currency but would not find it welcome if a portfolio shift were to bring a substantial appreciation of the euro vis-à-vis the dollar. The results show an increase in the shares of both the dollar and the euro reserve currency in recent years at the expense of other currencies, with the euro gradually becoming more important, especially in the developing world. Recent evidence of moves in the first direction comes from Russia and Eastern Europe, China, and Kuwait, whereas there is some suggestion of movement in the second direction from Japan, Singapore, and perhaps China. A substantial increase in the euro’s share of central bank reserves would require 1) that more countries include the euro in their currency pegs (the composition of debt and trade having smaller effects than the choice of reference currency), and 2) that the scope for active central bank management of their portfolios widen by permitting them to take short positions (which becomes increasingly important with the observed trend to increased co-movement of the major currencies). This column says that financial integration, measured as bilateral bank holdings and transactions, increased by 40% more amongst eurozone members than countries that stayed out. He suggests that tough economic conditions in Europe may cause substantial economic policy disagreements among the Eurozone countries and the euro reserve currency and that one or more countries might actually withdraw from the Eurozone.