Policy brief

The euro as an international currency

Is a more important international role for the euro worth pursuing? What measures would achieve this result, if it is worth pursuing?

Publishing date
18 December 2018

Two questions should be answered in relation to the international role of the euro: is a more important international role for the euro worth pursuing, and what measures would achieve this result, if it is worth pursuing? The most significant benefit for the euro area if the euro played an increased international role would be less dependence on the dollar and a reduced ability of the United States to pursue its political objectives, which are possibly inconsistent with European Union objectives.

Historically, international functions have been shared between currencies and the international weights of currencies have evolved according to a limited number of variables. The most important of these are the economic size of the issuing country, the level of development and stability of the underlying financial market, openness to capital movements, a policy stance that encourages currency internationalisation, and political and military power. With the exception of financial stability, these factors do not vary substantially in the short run and give rise to persistent, long-term trends. Thus, in the first twenty years of its existence, the euro has consistently been the second most used international currency, while the dollar has maintained the first position it has held since the second world war.

The gap between the dollar and the euro is greatest in the invoicing of commodity trade and as vehicle for foreign exchange transactions, and smallest in cross-border payments. While the ranking of the dollar and the euro has not changed, the euro’s share has fluctuated, particularly in its use in international finance, in correlation with the stability of the euro financial market. This has confirmed that a necessary condition for the euro to play a greater international role is the stability of the euro-area financial system.

In addition, the completion of banking union, progress on capital markets union, the issuance of a common bond, and more generally the completion of the institutional architecture of the euro area and progress on a common foreign and defence policy, would promote a wider role for the euro. The European Central Bank should also move beyond its neutral attitude towards the international use of the euro.

Most of these policies would have effects well beyond the international use of the euro and, while in principle desirable, are not easy to achieve. Proposals on the international role of the euro published in December 2018 by the European Commission were the start of a journey rather than a decisive step towards a greater international role for the euro.

About the authors

  • Francesco Papadia

    Francesco Papadia is the chair of the Selection Panel of the Hellenic Financial Stability Fund (HFSF). He was, between 1998 and 2012, Director General for Market Operations at the European Central Bank. He worked previously at the Banca d´Italia, first as Director of the International Section of the Research Department and then as deputy head of the Foreign Department. Mr. Papadia has a degree in law from the University of Rome and attended postgraduate studies in Economics and Business at the Istituto Adriano Olivetti in Ancona and at the London Business School.

    Mr. Papadia is the author of a number of publications in the fields of International Economics and Monetary Policy. While collaborating with Bruegel, the focus of his research will be on European and global macroeconomic issues, including governance questions.

  • Konstantinos Efstathiou

    Konstantinos, a Greek citizen, works in Bruegel as an Affiliate Fellow in the Macroeconomics and Governance area. Before joining Bruegel, Konstantinos was at the European Commission, as a Blue Book Trainee in the Cabinet of President Juncker. He also interned at the Central Bank of Luxembourg (BCL) as a research assistant, involved in projects related to the Wage Dynamics Network (WDN) research group.

    He holds a Master in International Economics and International Relations from the Johns Hopkins University School of Advanced International Studies (SAIS), where he specialized in Quantitative Methods and European Studies.

    Konstantinos’ research interests include macroeconomics, European economic governance and international economics.

    Konstantinos is a native speaker of Greek, speaks fluent English and has good knowledge of French.

    Declaration of interests 2017

    Declaration of interests 2018

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