An Opening for the Euro

This paper assesses whether recent global developments have created an opportunity for the euro to expand its international role. Progress in the euro’s internationalization has been mixed — falling short of optimists’ hopes of dethroning the dollar while exceeding skeptics’ predictions of failure. Though the euro has not surpassed the combined global share of its legacy currencies, it has outperformed earlier challengers to the dollar, such as the Deutsche mark and Japanese yen at their peak internationalization in the 1990s, and it remains significantly ahead of the renminbi today. Recent developments in the U.S — concerns over its economic stability, growth prospects, and reliability as a global partner — have intensified scrutiny of the dollar’s safe haven status, potentially creating an opportunity for the euro to gain ground globally. To capitalize on this opening, Europe must strengthen its economic foundations, conclude new trade agreements and enhance its cross-border payment infrastructure with key trading partners, so as to bolster trade invoicing in euro. Fostering pan-European markets for equities, corporate bonds, and securitizations would boost liquidity and scale, enhancing the euro’s appeal as a global financing and investment currency. And establishing a unified euro-denominated safe asset to finance public goods such as defense, while bolstering Europe’s geopolitical credibility, would be critical to achieving these goals.