Euro vs. Dollar: Can it Expand Globally?

Amid the challenges faced by the US dollar, there are signs that the euro may benefit from the ongoing economic shifts in the global financial system. These changes come at a critical time as US economic policies, under President Donald Trump, experience significant volatility, raising questions about whether the euro can strengthen its position as a global reserve currency.

Despite the recent rise in the euro’s value, its path to challenging the dollar’s dominance remains fraught with structural obstacles. The Eurozone continues to face internal political and economic challenges that may hinder the euro’s ability to become the world’s leading currency. Among these challenges are the varying economic policies across European Union member states and structural issues that could impact sustained investment inflows.

The decline in the dollar, driven by unstable economic policies, has prompted investors to seek alternative safe-haven assets, such as the Japanese yen and Swiss franc. At the same time, investment trends are shifting toward markets like Europe, which have seen increased investment in light of the current economic conditions.

However, the European Union’s challenges, including political crises and disagreements among member states, could limit the euro’s ability to capitalize on opportunities in the global market. Additionally, the eurozone’s monetary and fiscal policies may not be fully prepared to support the euro’s transformation into a dominant global currency.

Meanwhile, Europe’s prospects may be bolstered by the recovery of its economy, particularly in Germany. This improvement, along with increased investments in defense and renewable energy sectors, could help present the euro as an attractive option for investors.

Despite these opportunities, the euro faces key barriers, primarily its limited international circulation. This limitation is largely due to the persistent surpluses in the Eurozone’s current account, meaning that the euro is not flowing freely outside its borders. In contrast, the dollar benefits from a structural current account deficit, allowing it to flood global markets in large quantities, giving it unparalleled liquidity and reach.

Ultimately, the question remains whether these economic shifts will lead to a long-term transformation in the euro’s position compared to the dollar, or if these changes are merely short-term fluctuations.