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Can the Euro Replace the US Dollar? 2025 Global Reserve Currency Outlook

Can the Euro Replace the US Dollar? 2025 Global Reserve Currency Outlook

June 6, 2025 | Source: Investing.com

The Rise of the Euro and Decline of Dollar Dominance

In recent years, the Euro (EUR) has attracted attention as a potential global reserve currency. This trend is driven by growing distrust toward the U.S. Dollar (USD), confidence in the EU’s economic stability, and trust in its legal framework.

Geopolitical risks, U.S. fiscal uncertainty, and a move toward a multipolar currency system have encouraged currency diversification in foreign reserves and international trade settlements.

Macquarie Analysis: The Euro is a Strong Candidate but Lacks a Decisive Edge

Australian investment bank Macquarie notes that while the Euro is the “next best thing,” it falls short in several prerequisites required to replace the U.S. Dollar.

The key requirements for a global currency, according to Macquarie, include:

  • Free Capital Movement: The Euro, Dollar, and Yen are free of capital controls (ECB reference)
  • Persistent Current Account Deficit: The U.S. supplies dollars globally through its ongoing deficit, but the Eurozone (Eurostat) runs a surplus, falling short on this point
  • Integrated Capital Markets: The U.S. has a unified bond market, whereas the EMU lacks a fully integrated financial market with limited liquidity
  • Settlement Infrastructure: SWIFT and CHIPS remain Dollar-dominant, making it hard for other currencies to compete

Institutional Credibility: EU May Have the Edge

Macquarie points out that while the U.S. struggles with “institutional erosion and policy uncertainty,” the EU maintains an orderly framework based on the rule of law.

However, in terms of multifactor productivity (MFP) and labor input, the U.S. still leads, demonstrating greater economic performance capacity.

The Euro's Expanding Global Share

The current global currency share (as of 2025) is as follows:

  • Foreign Reserves: USD 58%, EUR 20% (IMF Statistics)
  • SWIFT Transfers: USD ~50%, EUR 22% (SWIFT Report)
  • International Trade Settlement: USD ~55%, EUR ~30%

While the Dollar still holds overwhelming dominance, the Euro is clearly establishing itself as the world’s second most influential currency.

Future Outlook: Toward a Multipolar Currency System?

Macquarie ultimately concludes that “there is no immediate substitute for the USD,” but emphasizes that “even a 5–10% shift could significantly impact valuations across asset classes.”

The key moving forward will be the ECB’s progress in financial market integration, capital market cooperation across the EU, and the development of alternative global payment systems.

▶ Latest Statements from the European Central Bank (ECB)

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This article analyzes the Euro's potential to become the next reserve currency, focusing on capital mobility, market integration, and payment infrastructure. Macquarie notes that the USD still has no immediate replacement, but even a small shift in reserve allocation could have a major market impact.

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DANIEL JOHN GRADY
Author

Daniel John Grady is a financial analyst and writer. He is a former CFO with a degree in Financial Management and has been published in both English and Spanish. With over ten years of equities trading experience, he is primarily interested in foreign exchange and emerging markets with a focus on Latin America.

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