For decades, the dollar has maintained a practically unchallenged position as the main world reserve currency, a status that has guaranteed the United States a series of considerable advantages, from the lowest financing costs to an unfortunate influence on global markets. With the change of the World Economic Order and the emergence of new centers of power, the question of which currencies will dominate the future assumes great relevance and the supremacy of the dollar should no longer be taken for granted. We believe that the euro is emerging as a credible alternative. In our opinion, three factors should strengthen the role of the second most important reserve currency in global markets. Claudio Wewel, FX Strategist by J. Safra Sarasin underlines it.
Eurobond
The US Treasury securities market, deep and liquid, explains the expert, is one of the key factors that support the dominant role of the dollar as a reserve currency. With one of the latest AAA rating, the German bunds built a solid reputation as a refuge as good, but their value in place, equal to 2.5 trillion euros, is less than 10% of the US Treasury securities market, currently evaluated at about 30 trillion dollars. Therefore, it is unlikely that the creation of a deep and liquid market can only be made with an increase in the emission of German bund. Instead, they would be preferable to surely European assets, which lays in favor of the joint issue of Eurobond. Numerous proposals have been advanced on how to deal with the problem of moral risk deriving from the common debt of the euro area, with Blanchard and Ubide (2025) who presented the most recent idea. Instead of issuing new Eurobonds, they propose to replace a substantial part of the existing stock of national government bonds with Eurobond.
The exchange of national government bonds with Eurobond up to a 25% threshold of GDP would create a market of 5,000 billion euros, a size that would offer sufficient liquidity to investors, despite being perceived as sure. Once the demand by global investors is increasing, this will probably push the yields of Eurobonds to levels lower than those of national government bonds. However, recognizing that Eurobonds remain politically controversial and continue to meet the political opposition of Germany and the Nordic countries, further progress will be needed towards a tax union and/or improved control measures to guarantee tax discipline.
Digital euro
Accelerating the development of the digital euro, started in 2021, represents another way to increase the demand for euros. In light of the recent initiatives of the Trump Administration (executive order 14178, Genius Act) aimed at establishing the legal bases and promoting the use of Stablecoin guaranteed by the dollar, progress on this front will be particularly important, in our opinion. Similarly to Stablecoin, the digital euro will improve the efficiency of payments allowing regulations in real time or almost instantaneous, which improve cross -border payments in particular. The introduction of the digital euro would also improve financial inclusion by providing payment options to people who do not have a bank account, in particular in remote or scarcely served areas.
What even more important, the digital euro supported by the ECB would be without risk of insolvency, representing a competitive advantage over the private Stablecoins supported by the dollar. Finally, the digital euro would strengthen monetary and strategic autonomy and would reduce dependence on non -European payment systems, such as US credit card companies or Big Tech wallets, while improving transparency of transactions and supporting anti -money laundering efforts.
Global trade
The commercial wars of President Trump are weakening the commercial ties between the United States and their traditional allies and partners. At the same time, however, this represents a unique opportunity for the euro area to strengthen one’s role and share in world trade. Although we plan that oil exporters of the Middle East will continue to prefer payments to dollars, the adoption of the euro could become popular for trade in sectors in which the euro area holds a competitive advantage, such as that of machinery, pharmaceutical products or green technologies. As a growing number of countries will deepen the economic ties with the euro area will begin to invoice the trade in euros at the expense of the dollar.
The transition of the euro towards a more widely used global reserve currency would entail clear advantages for the euro area and its members. Like the US Treasury securities, even European assets could benefit from a performance of convenience, or a premium that investors are willing to pay to hold a highly liquid and safe asset. The greatest use as a reserve currency would make the euro more stable during the cyclical recession phases and would increase the margin of tax maneuver of European governments to stabilize the economic activity in these periods. This would also involve a multiplier effect: if market operators hurried to buy activities called in euros in periods of crisis, there would be an incentive to do the same for others, since the holders of bonds would benefit from higher prices and a stronger euro.
We also believe that a wider use of the euro as a global reserve currency or for international payments should, all in all, lead to a further appreciation of the euro. In a longer context, the strong performance of the euro since the beginning of the year is not excessive at all, especially if we consider the extent of the recent geopolitical changes. Considering that the nominal and actual real -weighted exchange rate for trade have only increased moderately above their long -term mediums and that the assessments seem far from excessive, we believe there is a greater space for an appreciation of the euro in the long term, which could bring the EUR/USD gearbox closer to 1.30, concludes the expert.
