Strengthening the euro’s international role depends first and foremost on creating a common safe asset that is sufficiently liquid and plentiful to attract international investors, according to several experts who spoke to the European Parliament’s Committee on Economic and Monetary Affairs (ECON), on Tuesday 14 April. Despite its status as the world’s second-largest currency, the euro continues to be penalised by the absence of an equivalent to US Treasury bonds, considered to be the global benchmark for risk-free assets.
According to Thorsten Beck, Co-Chair of the Advisory Scientific Committee of the European Systemic Risk Board (ESRB), this structural shortcoming limits the euro area’s ability to compete with the dollar, particularly in its role as a reserve and financing currency. Speaking to MEPs on Tuesday afternoon, the expert stressed that the fragmentation of European capital markets and the lack of a unified safe asset were major obstacles to the euro’s international attractiveness.
“It’s not just about a stock [of safe assets, editor’s note]. It is about the flow [of issuance]”, he stressed.
Several experts spoke at length about the need to put in place a sustainable and credible supply of European debt, which is essential for the emergence of a safe euro asset, based on sufficiently plentiful and liquid government bonds.
“Without a large and credible supply of them, global investors and central banks simply have no practical means of holding currency at scale”, stressed Marie-Sophie Lappe, an analyst at the Bruegel think-tank, arguing that this dynamic should be part of a wider integration of capital markets, at the heart of the Savings and Investment Union project.
Does Europe lack a strategy for dealing with the United States and China? Shahin Vallée, Director of the Geoeconomics programme at the German Council on Foreign Relations (DGAP), pointed to the absence of a coherent strategy for internationalising the euro, in contrast to the structured approaches developed by the United States and China.
According to the expert, Beijing has set up “a very dense global network of FX swap lines”, pursuing objectives that include financial stability, the development of trade and the consolidation of geopolitical alliances.
The country has also created “a sovereign, fully public payment system which is allowing global payments outside of the reach of US sanctions”, while developing “a central bank digital currency that is creating a clearing system internally and externally, and creating the platform also for global central bank digital currency transactions”.
On the US side, the strategy is based both on the active use of Federal Reserve swap lines and, more recently, on the development of stablecoins in order to strengthen global demand for dollar-denominated assets.
The US regulatory framework “creates a convergence between the interest of the cryptocurrency or crypto asset ecosystem and the traditional Wall Street banking groups”, explained the expert, seeing it as a structural development for the dollar’s international role. Furthermore, Washington has chosen not to develop a central bank digital currency.
“Against that backdrop, Europe does not have a strategy”, lamented Mr Vallée, calling for a more coordinated approach between European institutions and clear political choices on monetary policy, payment infrastructures and the issuance of safe assets. (Original version in French by Bernard Denuit)