Brussels – The European Commission presented ideas on Wednesday to boost the euro as an international currency, amid concerns that the United States is increasingly using the dollar as a diplomatic tool.
In September, Commission President Jean-Claude Juncker said the euro should pay a bigger role in international payments, arguing that the 19-member currency should become an “active tool” of the European Union’s economic sovereignty.
Efforts to strengthen the euro’s role
A stronger euro would boost the resilience of the international financial system, provide more choice and reduce risk exposure due to reliance on a single currency, while also protecting EU interests and trade around the world, the commission argued on Wednesday.
“The euro should reflect the euro area’s political, economic and financial weight and support a balanced, rules-based international political and economic order,” said commission Vice President Valdis Dombrovskis.
In recent months, Washington has flexed its muscle by using the global role of the dollar to impose powerful sanctions on companies doing business with Iran.
However, efforts to promote the euro to a rival currency face numerous obstacles.
Among other things, EU member states would have to take further steps to strengthen the resilience of the euro and integrate the bloc’s financial sector – reforms that have faced resistance from member states such as Germany.
The commission advocated “economic diplomacy,” and noted that financial market infrastructure would have to be bolstered – as well as issuing more euro-denominated debt for foreign governments and institutions to invest in.
EU: Promote using of euro in energy deals
Trust in the euro was hit hard by Europe’s financial crisis and the currency has so far failed to fully recover its standing.
The euro now represents around 20 per cent of foreign central banks’ international reserves, according to the commission, while more than 20 per cent of international debt issuance was denominated in euros by late 2017 – just over half of the pre-crisis peak in 2007.
The euro is already a widely accepted tool for international payments, the commission argues, noting that around 36 per cent of the value of international transactions was traded in euros last year, compared to about 40 per cent for the dollar.
Nonetheless, Juncker called it “absurd” in September that the EU settles its 300-billion-euro (340-billion-dollar) annual energy bills in dollars.
The commission recommended on Wednesday that member states promote the use of the euro in international energy deals, as well as calling for the promotion of liquid gas hubs in Europe to boost euro-denominated products and the launch of euro-denominated crude oil benchmarks.
The decision to use one currency over another ultimately rests with companies and traders.
“The US dollar is the most-used trade currency, even when US companies are not involved,” economists Adam Tooze and Christian Odendahl wrote for the Centre for European Reform, a think tank.
“Only eurozone firms, trading mostly within the eurozone, invoice chiefly in their own currency,” they added.