Europe | The dollar, the end of its hegemony and an opportunity for the euro?

Summary

The dollar's recent fall has reignited the debate about the possible end of its hegemony in the global financial architecture. A question that has once again fed an old European desire: for the euro to consolidate its position as a reserve currency and safe haven.

Key points

• Key points:
• This would grant Europe access to the same "exorbitant privilege" that the United States has enjoyed for the past hundred years.
• The end of the dollar's hegemony would undoubtedly be a historical rarity. There would be only two comparable antecedents: the fall of sterling as a global currency in the 20th century and, before that, the fall of the Dutch guilder.
• Is Europe in a position to share – or even take over – the baton? Reserve currency status rests on three pillars: financial technology, economic weight and institutional stability.
• In terms of economic weight, the European Union (EU) has a GDP comparable to that of the United States in purchasing power parity. But size alone is not enough: What really matters is whether it can sustain the supply of liquidity demanded by global markets.
• The EU is currently a benchmark in terms of the rule of law. But it would also require an unequivocal commitment without internal dissonance.

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