After decades of hegemony of the King of the Dollar, and at a time when Donald Trump’s policy is unscathed in Greenback, some dream in Europe to see him leave his crown in the euro. But the task promises to be arduous, while the euro has affected a summit since September 2021, to $ 1.17, Thursday, June 16.
The head of the IMF of Kristalina Georgieva mentioned “a great opportunity.” “Strengthening the international role of the euro” is also part of the Agenda of the European Summit that is celebrated until Friday, but remains dominated by the geopolitical situation.
Why are we talking about that?
In recent months, the commercial war launched by the president of the United States, Donald Trump, and concerns about US finances have had the confidence of investors in the economy of the United States and their currency.
Greenback has changed Thursday at its lowest levels for three years, depending on the dollar index that compares it with a basket of other coins. On the contrary, gold and coins such as the Swiss Franco, where the euro is increasing. In summary, investors accelerate the products associated with the United States to bet on other assets and protect themselves from Trump -driven instability.
“We left a long period during which the dollar had more credibility than any other currency,” says Nicolas Véron, a researcher at the Institute for the American Reflection Center of Peterson, a phenomenon that dates back to the postwar period.
Supplant the dollar, what to do?
The greatest asset would be the ability to borrow a priori without limit, because investors seek world reference assets, in a quiet weather as in times of crisis.
For European citizens, this can lead to credits to more advantageous rates or more abundant public investments.
It is the “exorbitant privilege” of a powerful currency, an expression used in 1964 by former French president Valéry Giscard-D’estaing on the dollar: Washington could borrow as he understood because international investors bought their debt.
A motto with this status also allows companies and homes to better resist international clashes.
And the negative effects?
The internationalization of a currency is generally accompanied by its overvaluation. This caused the anger of Donald Trump, for whom a strong dollar weakens American exporters.
The Swiss Franc, acclaimed by investors currently, has seen a strong increase its value in recent months, which has worried the Swiss Central Bank.
A Euro reinforcement would run the risk of eroding the competitiveness of European exports.
Where is the euro?
“It is important to distinguish between what is a rebalancing process and what is a rocking chair in which the euro would become the reference currency to replace the dollar,” warns Nicolas Véron.
Greenback is ultra dominating in commerce where products such as oil or aircraft are paid in dollars, in central banks change reserves, even if it goes back, and in interbank payments.
Dollar action tends to decrease over time. The US currency still represented 72% in world reserves in the early 2000s before decrease, indicates the IMF. And after a rebound in the early 2010s, the dollar fell again to reach a more than 58%.
For its part, the euro is not necessarily more desired. If it went up until 2010 to flirt with 30%, the crisis of the sovereign debt of the Zoine euro weakened it. It has been limiting 20% of the planet’s reserves for a decade.
“There are great progress to make,” according to Isabelle Mateos and Lago, who insists on the necessary improvement in the European “plumber”: the union of capital markets, which is struggling to move forward and the idea of a common European debt.
From there to remind the dollar to the closet? “Diversification compared to the dollar will take time and cannot be done for the benefit of a single currency,” he believes that Kathleen Brooks, director of Economic Research of the XTB broker. “The future could be made of multiple global currencies.”
Source: BFM TV
