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Euro could become the dollar's alternative, Lagarde says
Published by Global Banking & Finance Review®
Posted on May 26, 2025
3 min readLast updated: January 23, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on May 26, 2025
3 min readLast updated: January 23, 2026
Christine Lagarde believes the euro could rival the dollar if Europe enhances its financial and security systems, despite the euro's stagnant global role.
FRANKFURT (Reuters) -The euro could become a viable alternative to the dollar, earning the 20-nation bloc immense benefits, if governments could only strengthen the bloc's financial and security architecture, ECB President Christine Lagarde said on Monday.
Unnerved by erratic U.S. economic policy, global investors have been reducing their exposure to dollar assets in recent months but many have opted for gold instead, not seeing a direct alternative.
In fact, the euro's global role has been stagnant for decades now since the European Union's financial institutions remain unfinished and governments have shown little appetite to embark on more integration.
"The ongoing changes create the opening for a 'global euro moment,'" Lagarde said at a lecture in Berlin. "The euro will not gain influence by default - it will have to earn it."
For this, Europe needs a deeper, more liquid capital market, must bolster its legal foundations and needs to underpin its commitment to open trade with security capabilities, Lagarde argued.
The dollar's role has been on the decline for years and now makes up 58% of international reserves, the lowest in decades, but still well above the euro's 20% share.
Any enhanced role for the euro must coincide with greater military strength that can back up partnerships, Lagarde said.
"This is because investors – and especially official investors – also seek geopolitical assurance in another form: they invest in the assets of regions that are reliable security partners and can honour alliances with hard power," Lagarde said at a Hertie School lecture.
Europe should also make the euro the currency of choice for businesses invoicing international trade, she said. This could be supported by forging new trade agreements, enhanced cross-border payments and with liquidity agreements with the ECB.
Reforming the domestic economy may be more pressing, however, Lagarde said. The euro area capital market is still fragmented, inefficient and lacks a truly liquid, widely available safe asset investors could flock to, she said.
"Economic logic tells us that public goods need to be jointly financed. And this joint financing could provide the basis for Europe to gradually increase its supply of safe assets."
Joint borrowing has been a taboo for some key euro zone members, particularly Germany, which fears that its own taxpayers could end up having to pay for the fiscal irresponsibility of others.
If Europe succeeded, the benefits would be large, Lagarde said. The investment inflow would allow domestic players to borrow at lower cost, insulate the bloc from exchange rate movements and protect it against international sanctions.
(Reporting by Balazs Koranyi; editing by Mark Heinrich)
Lagarde mentioned that the euro's global role has been stagnant for decades and emphasized that it will not gain influence by default; it must earn it.
Lagarde argued that Europe needs a deeper, more liquid capital market, stronger legal foundations, and a commitment to open trade with security capabilities.
The dollar's role has been declining, currently making up 58% of international reserves, the lowest in decades, while the euro holds a 20% share.
Lagarde stated that any enhanced role for the euro must coincide with greater military strength to back up partnerships, as investors seek geopolitical assurance.
A stronger euro could lead to lower borrowing costs for domestic players, insulation from exchange rate movements, and protection against external economic shocks.
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