Experts Say Euro Might Replace US Dollar
(MENAFN) The euro holds the capability to potentially take the place of the US dollar as the dominant global reserve currency.
However, analysts speaking to a news agency highlighted that “the lack of unity within the eurozone” and the robustness of the American financial markets remain substantial barriers to achieving this transition.
Christine Lagarde, the President of the European Central Bank (ECB), recently emphasized that the euro could serve as a credible alternative to the dollar, particularly in a world increasingly influenced by trade protectionism.
According to her, the euro is well-positioned to assume a greater role in the evolving global economic landscape.
Jane Foley, who leads FX strategy at Rabobank, noted that Lagarde’s comments aligned with those made by German Chancellor Friedrich Merz following the elections, where he advocated for increased European independence from the United States.
Foley explained that “the lack of fiscal unity within the eurozone and the sheer depth of US capital markets” continue to be key challenges impeding the euro's ability to replace the dollar as the primary reserve currency.
Nonetheless, she added that this does not prevent the euro or other currencies like the Chinese yuan (CNY) from gradually eroding the dollar’s supremacy. Foley also pointed out that “Lagarde’s remarks that the Eurozone will push to have more trade invoiced in the EUR’s going forward” represents a noteworthy move toward reducing reliance on the US dollar.
Kyle Chapman, an FX market analyst at the Ballinger Group, echoed similar sentiments, asserting that the euro has “the potential to become an alternative to the dollar, but changes will need to be made.”
He elaborated that the primary reason behind the global inclination toward the dollar is that “the US is a more cohesive entity with a singular, deeply liquid debt market,” in contrast to the eurozone, which is divided and consists of numerous issuers with varying political landscapes and differing levels of creditworthiness.
In conclusion, while the euro shows promise as a contender to the dollar’s dominance, structural and political fragmentation within the eurozone, along with the unmatched scale of US capital markets, pose significant hurdles that must be addressed for any serious transition to take place.
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