Lagarde: The Euro Could Become a Substitute for the Dollar

Christine Lagarde,Foreign exchange dealers abook and bbook President of the European Central Bank, recently stated in Berlin, Germany, that if EU countries can deepen the integration of their financial systems and strengthen their security architecture, the euro has the potential to become a viable alternative to the dollar, bringing significant economic and geopolitical benefits to the EU.

In her speech at the Hertie School, Lagarde emphasized, "The current situation provides an opportunity for the euro to achieve global currency status, but this is not guaranteed; the euro must gain trust and influence through substantial efforts." She noted that although the dollar's share of global reserve currency has fallen to an all-time low of 58%, it is still much higher than the euro's 20%.

Lagarde pointed out that the key to achieving a "global euro moment" lies in creating a deeper and more liquid capital market, solidifying a unified legal framework, and supporting it with robust security capabilities to uphold the EU's commitment to open trade. She believes geopolitical security is becoming an important reference for investors when assessing assets, and strong security guarantees are a crucial supplement to earning trust for the euro.

She also called for Europe to strive to make the euro the preferred billing currency in international trade. This can be achieved by signing more trade agreements, improving cross-border payment efficiency, and establishing more liquidity arrangements with the European Central Bank.

However, she also acknowledged that the eurozone faces severe structural challenges. Issues such as highly fragmented capital markets, insufficient supply of safe assets, and a lack of effective liquidity limit the euro's appeal. Lagarde pointed out, "Economic logic clearly indicates that public goods need to be provided through joint financing, which is fundamental to enhancing the global attractiveness of the euro."

Despite "joint borrowing" being contentious in countries like Germany due to concerns over the spillover of fiscal responsibility, Lagarde stressed that joint financing would help increase the supply of high-quality safe assets, attract capital inflow, reduce financing costs, and enhance the eurozone's resilience to exchange rate fluctuations and international sanctions.

She concluded, "If Europe can successfully achieve these goals, it will not only elevate the euro's international status but also bring profound strategic and economic benefits to the EU as a whole."

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