WHEN THE European Union launched the euro two decades ago, economists wondered if this novel currency might pull off a feat none other had managed in the post-war period: to challenge the mighty American dollar. However, reserve managers at the world’s central banks, as well as business folk the world over, largely stuck with the trusty greenback. Now Europe is having another go at establishing the bona fides of the euro beyond its borders.
Around a fifth of all foreign-exchange reserves accumulated by central banks, and a similar percentage of cross-border loans and bonds, are denominated in euros—the share for the dollar is about 60%. The euro’s share of payments for transactions is much closer to that of the dollar , unsurprisingly given that the EU is the world’s biggest importer and exporter of goods and services. Still, commodities like oil remain mostly priced in dollars.
The first is America’s changing attitude to international economic policymaking—at least under the presidency of Donald Trump. His brand of jingoist protectionism jarred with the obligations incumbent on the issuer of the world’s reserve currency. Even under the more conciliatory Biden regime, Europe frets that its interests will not always be aligned with America’s. Relying on the dollar is perceived as an even greater potential vulnerability than before.
The second change came, unexpectedly, as a result of the pandemic. Whereas the last global recession brought the euro to the precipice, on this occasion the swift actions of the ECB and national governments to support their economies were well received. Such battle-hardening has boosted the credibility of the euro in a crisis—a key attribute of a global currency.
Not all barriers to more international usage of the euro have disappeared. For one, the “safe asset” may prove temporary: in theory, the last NGEU bond will be issued in 2026 . The sums of money are also small, by global financial standards. Total EU debt outstanding will peak at around $1trn, while America has over $20trn of debt outstanding that investors can trade.
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