Euro challenges dollar as global reserve currency, says experts

The euro has the potential to challenge the US dollar’s dominance as the world’s primary reserve currency, but experts say internal fragmentation within the eurozone and the unmatched scale of US capital markets remain formidable roadblocks.

European Central Bank (ECB) President Christine Lagarde recently argued that the euro could assume a larger global role, particularly in a world increasingly shaped by trade protectionism. She emphasized the need for the eurozone to promote more international trade invoiced in euros—a key move to reduce reliance on the US dollar.

Jane Foley, head of FX strategy at Rabobank, echoed this sentiment but pointed out that fiscal disunity among eurozone member states and the depth of the US capital markets are significant challenges. “The lack of fiscal unity within the eurozone and the sheer depth of US capital markets remain significant constraints on the euro replacing the dollar. However, that doesn’t mean the euro—and other currencies like the Chinese yuan—won’t slowly erode the dollar’s supremacy,” Foley said.

She added that Lagarde’s call to expand euro-denominated trade was “an important step in loosening dependency on the greenback.”

Kyle Chapman, a foreign exchange analyst at the Ballinger Group, agreed that the euro carries the potential to become a viable alternative but stressed that major structural reforms would be needed. “The US enjoys a unified, highly liquid debt market, whereas the eurozone remains fragmented, composed of numerous issuers with varying creditworthiness and political agendas,” he said.

Chapman noted that Germany’s Bund market, while stable, is too small to rival US Treasuries, and debt instruments from other European countries do not offer the same level of perceived safety.

“For the euro to truly rival the dollar, there must be deeper integration—more joint EU-level borrowing, broader issuance of euro-denominated debt, and more cohesive capital markets across the bloc,” he said.

The conversation surrounding the euro’s potential has gained urgency amid shifting geopolitical alliances and efforts by many nations to diversify away from the dollar. However, analysts say any meaningful shift will require political will and institutional reforms across the European Union.