The Global Role of the Euro: Challenges and Opportunities

Introductory statement by Thorsten Beck, Vice-Chair of the Advisory Scientific Committee of the ESRB, at the Hearing at the Committee on Economic and Monetary Affairs of the European Parliament

Since its inception in 1999, the euro was widely expected to emerge as a premier global reserve currency capable of rivalling the US Dollar (USD). Decades later, that transition has not materialised. While there was an increase in the international role of the euro in the early years of this century, it declined significantly after the Global Financial Crisis. Currently, composite indices show a role of less than 20%.[1] And while there has been a decline in the role of the USD as reserve currency (from 71% in 1999 to 59% in 2021), this shift out of dollars has been to a quarter into the Chinese renminbi, and three quarters into the currencies of smaller countries (Arslanalp et al., 2022), so the euro has not really benefitted from this decline.

While there are short-term fluctuations in the international role of the euro related to business and monetary policy cycles, I would like to focus on long-term trends but link this discussion to recent events and discussions. Importantly, the debate over the euro’s international standing has been reignited by the dramatic geopolitical and geoeconomic shifts of the past year.

To understand the euro’s potential, we must first define what a "global role" entails. It is multifaceted, encompassing a currency's use as a reserve currency for central banks, a funding currency for international debt and equity, and an invoicing currency for global trade.

To understand why the euro has struggled to gain ground, we must look at the pillars of USD dominance as global reserve currency: