Paris (awp/afp) – The euro can strengthen its international role against the US dollar in the current global turbulence, with significant benefits for the European Union, the Council of Economic Analysis (CAE) said on Tuesday.
Since his second term, US President Donald Trump’s policies – raising American tariffs, war in the Middle East – have eroded trust in the greenback, after decades of hegemony.
In a more fragmented world, this “opens a window of opportunity” for the euro, also facing the quest for internationalization of the Chinese renminbi, CAE, an organization attached to Matignon, highlighted in a note.
The euro is the world’s second most used currency, far behind the dollar, however.
The European single currency represents about 20% of global foreign exchange reserves, compared to 58% for the dollar, and only 18% of global trade invoicing (compared to 60%), even though the EU weighs more in global trade (16% compared to 14% for the United States).
The dollar dominates international payment systems and commodity invoicing, note authors, economists Hélène Rey and Ludovic Subran observed.
However, “strengthening its international role could provide the European Union with significant economic and geopolitical benefits”: lower financing costs, enhanced influence in the global economy, less exposure to external shocks, or increased availability of funds to invest in defense, artificial intelligence (AI), or energy transition.
But achieving this requires “a targeted and extensive reform program,” according to the economists.
They list recommendations: increase the issuance of safe European assets such as bonds, develop the euro capital market, strengthen financial infrastructures, encourage invoicing in euros in trade agreements, and develop digital euro (including stablecoins).
On Tuesday, Emmanuel Macron stated that payment methods represented “an essential part of our sovereignty,” at the French payment solution Carte Bancaire summit, a competitor to American giants Visa and Mastercard.
For the French President, “to give up control of payments would be to accept that the heart of our transactions depends on actors who are not necessarily aligned with us, who do not necessarily have the same interests.”
The internationalization of a currency generally leads to its overvaluation. However, the note believes that the euro can preserve its competitiveness “if the process is gradual.”
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