Experts Say Euro Might Serve as U.S. Dollar Substitute
(MENAFN) The euro stands poised to challenge the U.S. dollar's dominance as the world's leading reserve currency, though eurozone fragmentation and America's robust capital markets present formidable barriers, financial analysts informed a news outlet.
In recent remarks, European Central Bank President Christine Lagarde highlighted the euro's capacity to serve as a dollar substitute, suggesting the European currency could expand its influence amid rising global trade protectionism.
Rabobank's head of FX strategy, Jane Foley, observed that Lagarde's position mirrors German Chancellor Friedrich Merz's post-election advocacy for diminished reliance on the United States.
"The lack of fiscal unity within the eurozone and the sheer depth of US capital markets remain as significant constraints on the EUR replacing the USD as global reserve currency; however, that doesn't mean that the EUR and other currencies such as the CNY will not chip away at the USD's crown," she said.
"Lagarde's remarks that the Eurozone will push to have more trade invoiced in the EUR's going forward is an important step in loosening dependency on the greenback," she added.
Kyle Chapman, an FX markets analyst with the Ballinger Group, acknowledged that the euro holds “the potential to become an alternative to the dollar, but changes will need to be made.”
"The US is a more cohesive entity with a singular, deeply liquid debt market, while the eurozone is fragmented and made up of dozens of issuers, all with their own politics and some more creditworthy than others," Chapman said.
"The German Bund market is too small to rival Treasuries, and other European countries are not as safe," he noted.
Chapman outlined critical reforms needed for euro advancement: "For the euro to become a true dollar alternative, it would require, for example, more joint borrowing and EU-level debt issuance, more integrated capital markets, and more euro-denominated invoicing."
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