In this paper, an attempt is made to evaluate the prospects of the Euro challengingthe current dominant position of the dollar as the world’s leading currency. Thisis done by identifying the factors which lie behind central bank decisions to holdreserves of major currencies. Thus, the determinants of central bank reserveholdings are analyzed for pre-Euro and post-Euro periods. It is expected thatdevelopments in major Asian countries will possess greater clout in determiningcurrency relationships in the future. So, the relative world shares of trade andincome of Asia, along with other real economic as well as financial variables andoil market developments are used in the estimation process. Different simulationsare undertaken to trace possible future scenarios for the euro and the dollar. Thesimulations indicate that a rise in emerging Asian market share of world outputwill work towards preserving dollar dominance.