Paris – The euro can strengthen its international role against the dollar in the current global turmoil, with significant benefits for the European Union, the Council for Economic Analysis (CAE) said Tuesday.
Since his second term, US President Donald Trump’s policies – such as raising American tariffs and engaging in Middle East conflicts – have eroded confidence in the greenback after decades of dominance.
In a more fragmented world, this “opens a window of opportunity” for the euro, the CAE noted. The euro is the second most widely used currency globally, though far behind the dollar.
The European single currency represents around 20% of global foreign exchange reserves, compared to 58% for the dollar, and only 18% of global trade invoicing (versus 60%), despite the EU having a larger share in global trade (16% compared to 14% for the US).
The dollar is dominant in international payment systems and commodity invoicing, according to the note by economists Hélène Rey and Ludovic Subran.
However, “strengthening its international role could bring significant economic and geopolitical advantages to the European Union”: lower financing costs, enhanced influence in the global economy, reduced exposure to external shocks, and increased funds availability for investments in defense, artificial intelligence (AI), or energy transition.
Achieving this requires “a targeted and extensive reform program,” the economists said, listing recommendations such as increasing the issuance of European safe assets like bonds, developing the euro capital market, strengthening financial infrastructures, promoting euro invoicing in trade agreements, and developing digital euro (particularly stablecoins).
French President Emmanuel Macron stated Tuesday that payment methods are “an essential part of our sovereignty,” at the Carte Bancaire French payment solution summit, a competitor to American giants Visa and Mastercard.
According to the French president, “to give up control of payments would be to accept that the core of our transactions depends on actors who may not necessarily align with us, who may not necessarily have the same interests.”
The internationalization of a currency usually leads to overvaluation. However, the note suggests that the euro can maintain its competitiveness “if the process is gradual.”
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