The euro can challenge the global predominance of the dollar as a reserve currency , the European Commission said on Wednesday.
The challenge, the commission argues, is to reflect its economic power to project Europe on the world stage through “economic diplomacy”, “engaging with global partners to promote the use of the euro in payments and as a reserve currency”.
About 36 per cent of the value of international transactions are conducted through euro, compared with 40 per cent in dollars, but the euro represents only 20 per cent of international reserves of foreign banks.
The commission at its meeting on Wednesday launched a paper “towards a stronger international role of the euro”, which urges member states to start a dialogue with market participants to encourage the use of the euro in transactions and as a means of saving.
As a first step the commission will target the energy market. The paper points out that of the €40 trillion traded – predominantly crude oil – on European energy markets annually, 90 per cent is traded in currencies other that the euro. A similar proportion of the EU’s own €300 billion annual energy import bill is denominated in dollars and other currencies.
Market players
It will also initiate discussions with market players in raw materials and food commodity trading to encourage switching to euro use. It argues that trading in euro can reduce foreign-exchange risks and currency-related costs and that they can benefit from lower interest rates paid by Europeans.
The commission says the best way to create a secure environment where the euro will increasingly become the currency of choice is to strengthen the resilience of the currency by completing the economic and monetary union, particularly banking union, and the capital markets union. It is a pointed message to the EU leaders meeting next week to do just that.
The commission also recommends the establishment of euro-based integrated instant cross-border payment systems , rather than relying on “a small number of global providers when making cross-border card and online payments.”
The euro’s predominant position on the markets took a hit during the euro crisis. It accounted for 44 per cent of global payments in 2012, with the dollar at 30 per cent. By 2015 the picture had completely changed: 29 per cent of global payments were made in euro, 44 per cent in dollars. By last year, the ratio was a somewhat more balanced 36 per cent euro to 40 per cent dollars.
Although the euro economies represent only 12 per cent of global GDP, the currency has become the currency of choice for 60 other countries, which use it as their currency or link to it.
