2019年-CEPS欧洲政策研究中心_The_euros_global_dreams_and_nightmares_4页_497kb

The Euro's Global Dreams and Nightmares Summary

Core Content

The document "The Euro's Global Dreams and Nightmares" by Barry Eichengreen explores the challenges and opportunities facing the euro as a global currency. It highlights the historical context of the euro's creation, the current geopolitical tensions affecting its international role, and the European Commission's strategies to enhance the euro's status in the global financial system.

Main Views

• Historical Motivation: The euro was created in part to provide an alternative to the US dollar as an international and reserve currency. This idea was supported by the Werner Report (1970s) and the Delors Report (1989), which came in the wake of concerns about the stability of the Bretton Woods System and the dollar's dominance.

• Current Challenges: The Trump Administration has threatened to use the dollar as a tool for foreign policy, such as restricting European banks from accessing dollar liquidity in dealings with Iran. This has raised concerns about the reliability of the US as a source of dollar liquidity, which is crucial for global financial markets.

• US Dollar Dominance: The dollar continues to dominate global foreign exchange transactions, with nearly 50% of SWIFT transactions denominated in dollars. The Federal Reserve's role in providing liquidity to global markets, including to European banks, has been questioned, especially under Trump's administration.

• Euro's International Role: While the euro has seen some positive developments in recent years, such as an increase in its share of global foreign exchange reserves and payments, its role as a major international currency remains limited. The decline in the share of euro-denominated corporate bonds since the global financial crisis suggests that progress has been slow and uneven.

• European Commission's Proposals: The Commission has proposed several measures to enhance the euro's international role, including:

  • Finalizing the Banking Union to improve confidence in Europe's financial system.
  • Completing the Capital Markets Union to increase liquidity and stability.
  • Encouraging the private sector to securitize and tranche government bonds for better liquidity.
  • Implementing the Benchmark Regulation to create more transparent and reliable interest rates.
  • Establishing a fiscal fund to provide stabilization during asymmetric shocks.

• Limitations of Proposals: Despite these efforts, the Commission's proposals are largely a reiteration of previous ideas, and they have not led to significant changes in the euro's international standing. The dominance of the dollar is a deeply entrenched convention that cannot be easily overturned.

• Geopolitical Impact: Geopolitical tensions may accelerate some of these efforts, but they are unlikely to cause a dramatic shift in global currency preferences. A major shift would require a significant flight from the dollar, which the Commission does not want to provoke.

Key Information

• SWIFT and Dollar Liquidity: SWIFT handles over 50% of global transactions, most of which are in dollars, making dollar liquidity essential for international trade and finance.

• Federal Reserve's Role: The Fed has historically provided dollar liquidity to European banks and foreign central banks, helping to maintain global financial stability.

• Euro's Share in Global Markets:

  • Foreign Exchange Reserves: Increased in 2017.
  • Global Payments: Also increased in 2017.
  • Foreign Exchange Turnover: Increased in 2017 according to CLS.
  • Cross-Border Corporate Bonds: Declined sharply since the global financial crisis.

• Proposed Actions:

  • Encourage Airbus to invoice more transactions in euros.
  • Promote euro-denominated invoicing for energy imports.
  • Shift European Investment Bank debt issuance from dollars to euros.
  • Denominate foreign aid in euros.

• Conclusion: The euro's international role is still limited, and while the European Commission has outlined strategies to improve it, these measures are likely to yield only incremental results. A significant shift in global currency preferences would require a fundamental change in the dynamics of international finance, which is not currently in the offing.

Summary of Findings