Euro may replace dollar as global reserve currency 

The euro has the potential to replace the US dollar as the global reserve currency, but “the lack of unity within the eurozone” and the depth of the American capital markets remain major obstacles toward that goal, experts said in a report by Anadolu.

European Central Bank (ECB) President Christine Lagarde said in a recent statement that the euro has the potential to be an alternative to the dollar, as it can play a bigger role in a world shaped by trade protectionism.

Jane Foley, head of FX strategy at Rabobank, said Lagarde’s statement was in line with German Chancellor Friedrich Merz’s after the elections when he called for gaining greater independence from the US.

“The lack of fiscal unity within the eurozone and the sheer depth of US capital markets remain as significant constraints on the EUR replacing the USD as global reserve currency; however, that doesn’t mean that the EUR and other currencies such as the CNY will not chip away at the USD’s crown,” she said.

“Lagarde’s remarks that the Eurozone will push to have more trade invoiced in the EUR’s going forward is an important step in loosening dependency on the greenback,” she added.

Kyle Chapman, FX markets analyst at the Ballinger Group, said the euro holds “the potential to become an alternative to the dollar, but changes will need to be made.”

Chapman said the general preference toward the dollar is because “the US is a more cohesive entity with a singular, deeply liquid debt market, while the eurozone is fragmented and made up of dozens of issuers, all with their own politics and some more creditworthy than others.”

“The German Bund market is too small to rival Treasuries, and other European countries are not as safe,” he said.

“For the euro to become a true dollar alternative, it would require, for example, more joint borrowing and EU-level debt issuance, more integrated capital markets, and more euro-denominated invoicing."