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The euro has a “clear path” to bolster its position as a global reserve currency to rival the US dollar and must take advantage of the huge opportunities it now faces, according to the president of the Eurogroup.
Paschal Donohoe, who is Ireland’s finance minister as well as chief of the group of Eurozone finance ministers, said on Thursday there was a “heightened level of urgency” behind efforts to expand EU capital markets and adopt a digital euro.
“I believe that offers a clear path to strengthening the role of the euro on the global currency stage,” he told an EY summit for chief financial officers in Dublin, held in partnership with the Financial Times.
Donohoe’s comments come at a time of increased speculation over whether Donald Trump’s protectionist economic policies could affect the US dollar’s central role in the global financial system.
The US president’s apparent retreat from transatlantic alliances has also spurred European leaders to borrow more to fund increased military spending. Germany on Wednesday announced a historic €500bn debt deal to fund investment in defence and infrastructure.
The relative scarcity of German government bonds — the eurozone’s de facto haven — has in the past been seen as a barrier to wider adoption of the euro in central bank reserves around the globe.
The European single currency makes up 20 per cent of global reserves, roughly the same level as five years ago, according to the most recent IMF data. The dollar’s share has slipped to 57 per cent from 61 per cent over that time.
George Saravelos, at Deutsche Bank, said this week that Trump’s imposition of tariffs on trading partners had unexpectedly piled pressure on the dollar — something that partly reflected “the potential loss of the dollar’s safe-haven status”.
“We do not write this lightly,” Saravelos wrote, “but the speed and scale of global shifts is so rapid that this needs to be acknowledged as a possibility.”
Global investors have long questioned the ability of other currencies, including the euro, to rival the dollar’s long-standing role as the primary reserve asset, not least because of the vast $28tn scale of the US Treasury market, which dwarfs the €1.8tn market for German government bonds.
“Until you have a credible alternative [to the dollar], what can you do?” said Sonal Desai, chief investment officer at Franklin Templeton Fixed Income. “You need vast pools of deep liquid capital markets” to be seen as a haven region, “and at the current point in time, the crown sits with the US”.
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