The Credit Rating of the United States and the Emerging Role of the Euro: A New Global Currency Moment?

The Credit Rating of the United States and the Emerging Role of the Euro: A New Global Currency Moment?

In a notable speech, European Central Bank President Christine Lagarde addressed the possibility of a “Global Euro Moment”—a historic opportunity for the euro to increase its significance as a global reserve currency. Her remarks coincide with a growing distrust in the U.S. dollar, long considered the unchallenged global reserve currency. Over the past two decades, the dollar’s share of global foreign exchange reserves has declined from around 70% to just 58%. Central banks, particularly in emerging markets, have been actively diversifying their reserves to reduce overreliance on the U.S. dollar. This shift is driven by concerns over the geopolitical use of the dollar, particularly through U.S.-led sanctions and restrictions on dollar-based payment systems.

As Carsten Mumm, Chief Economist at DONNER & REUSCHEL AG, observes, this declining trust in the dollar is no longer merely theoretical. The erratic policies of the Trump administration, including unilateral tariff announcements and a general weakening of institutional reliability, have shaken global confidence in the dollar as a “safe haven” asset. For instance, despite sharp stock market losses in early April during the Trump era, the dollar depreciated significantly—an unusual move under normal circumstances.

Many countries are turning to gold as an alternative reserve asset, contributing to the surge in gold prices in recent years. However, while smaller currencies such as the Swiss franc or Scandinavian currencies offer stability, their markets are too limited to serve as global benchmarks. The Chinese yuan, though growing in influence, remains unsuitable for Western economies due to political and economic constraints.

A Rising Opportunity for the Euro

Given this environment, Lagarde sees a strategic opening for the euro. Currently holding a stable 20% share in global currency reserves, the euro could strengthen its position as the dollar’s influence wanes. Yet, Lagarde rightly emphasizes that the eurozone still lacks several key requirements to assume a more dominant global role.

First and foremost, geopolitical stability is essential. This includes:

A strong commitment to free trade, Widespread use of the euro in international trade settlements (already at about 40%), And a robust defense capability, ideally within stable military alliances.

Progress is being made, particularly in enhancing defense collaboration among major eurozone countries and the UK.

Economic Strength as a Cornerstone

Lagarde also highlights the importance of economic strength—sustained growth, deep and liquid capital markets, and an attractive supply of euro-denominated “safe assets” such as government bonds. Growth forecasts for Germany and the broader eurozone are increasingly optimistic, supported by improved sentiment indicators like the ifo Business Climate Index and the HCOB Purchasing Managers’ Indices.

Nevertheless, structural shortcomings remain. The eurozone still lacks a fully integrated capital market, a completed internal market, and sufficient mutualized debt instruments. Bureaucracy reduction and joint financing of common public goods (e.g., defense, climate initiatives) would help boost economic resilience and investment attractiveness.

A likely next step would be the expansion of joint eurozone bonds, offering global investors greater access to safe euro-denominated assets—an essential step toward matching the U.S. Treasury market’s global appeal.

Trust in Institutions: A Strategic Advantage

Lastly, Lagarde underscores the need for trust in European institutions, especially as U.S. institutions face increasing internal polarization and uncertainty. To build this trust, the EU must enhance its governance structures—for example, by abolishing the unanimity principle to increase its decision-making capacity.

A more integrated Europe, firmly anchored in democracy, the rule of law, freedom of expression, and open markets, could present an attractive alternative in a fragmented global system. Such integration would reduce the bloc’s exposure to currency volatility, lower sovereign borrowing costs, and minimize risks from sanctions and trade disruptions.

Conclusion: A Crossroads for Europe and the Dollar

A decade ago, the notion of the euro challenging the dollar’s supremacy seemed far-fetched. Today, however, shifting geopolitical dynamics, an increasingly multipolar world, and U.S. institutional volatility have created a window of opportunity for Europe. As Mumm suggests, the EU faces a stark choice: deepen integration and become a stronger, more autonomous global actor—or risk fragmentation and increasing vulnerability to external influence.

The outcome will not only determine the global monetary balance but could also reshape the financial architecture of the 21st century. The euro’s rise as a more prominent reserve currency may not be imminent, but the foundations are being laid—and the credibility of the U.S. credit rating, once ironclad, may no longer be enough to hold back the tide.