Is it a New Era for the Euro?

The United States (U.S.) dollar is the dominant currency in global trade and finance. According to recent statistics, about 50% of global trade is invoiced in the U.S. dollar, even though the share of U.S. trade has declined from 15% in 1970 to 8% — 10% in 2024. Meanwhile, over 60% of global transactions are conducted in the U.S. dollar due to availability, solvency, and deep capital markets. Global foreign exchange (FX) reserves paint a declining but important role of the U.S. dollar. The U.S. dollar is the most hoarded currency by central banks at 59%, followed by the Euro at 20%, the British Pound and Japanese Yen at 5% and 5.7% respectively (IMF, 2025). There is no denying the dollar’s global dominance in trade and financial markets.

However, a mix of structural factors, innovation, and geopolitics is pushing traders, market participants, and central banks to consider alternative methods of payment and clearing. The Euro is emerging as an important alternative, even as the structural drivers of the global economy are still dollar-centric. It is premature to overstate the role of emerging currencies even as the role of the dollar in global trade and finance shrinks marginally. However, traditional incentives of stability, certainty, and financial viability linked to the dollar are changing. This is where the Euro is uniquely placed to play a more agile role amidst the shifting financial sands.

We look at the emerging role of the Euro in four parts. Part one analyses the structural drivers pushing countries and market participants towards the Euro, followed by the role of innovation, geopolitics, and institutional drivers. It is simplistic to view such analyses as a precursor or driver of a broad-based dollar decline, but we will see why a confluence of factors is pushing market participants towards the Euro.

Structural Drivers

The Euro economy has grown at a slower pace in the last decade, outpaced by innovative and cheap Chinese alternatives and a gradual but persistent pace of industrialization in developing countries. Europe’s share of the global economy has fallen from 30% to 18.3% between 1990 and 2024. However, it remains an important trading partner for African and Asian countries, supplying cars, deodorant, chemicals, and other vital products for these economies.

Some of these economies have their currencies pegged to the Euro (Cameroon, for example), which is creating an incentive for them to trade more with the Euro as opposed to the U.S. dollar. Only 45% of financial transactions in Cameroon go through the SWIFT system, and Europe is the largest trading partner for Central African countries. This is creating a natural incentive for traders to use the Euro instead of the dollar, especially as the central African currency is pegged to the Euro. Of course, this is not enough to make a dent in the global use of the Euro, but it is indicative of the changing nature of global trade and finance.

A Role of Aid and Mutually Beneficial Development

The EU Global Gateway is emerging as a transparent, efficient, and necessary alternative to other global projects that reinforce the role of traditional and emerging currencies like the Chinese Renminbi. The Euro’s aid, loans, and grants will increasingly support a transition away from the dollar. However, this will be held back by the fact that multilateral finance is usually transacted in dollars, but a greater role of the Euro in Special Drawing Rights (SDRs) will increase its relevance among developing countries. During the COVID-19 pandemic, France increased its share of SDRs that can be attributed to developing countries, opening up new forms of financing that will influence the Eurocentrism of recipient countries. As the U.S. pulls back from global trade, diplomacy, and aid, the Euro should play a more activist role in shaping global development with an EU and Euro-led approach that will promote internationalization of the currency.

By this logic. Some argue that the Renminbi will play a more active role than the Euro in global trade and finance. However, the use of a currency in global trade and finance is not driven by sheer volumes and numbers alone. Although trade with China is growing, developing countries import more than they export to China. As a result, there is a growing consensus that China should begin trading using indigenous currencies, forcing it to keep some of its currencies. This could reduce transaction costs, boost transparency, and reduce illicit outflows — some analysts claim. So, growing trade with China is unlikely to influence FX reserves and trade invoicing for developing countries materially. If FX reserves followed trade, developing countries’ central banks would be holding 15–20% of Chinese renminbi based on trade flows and bilateral investment, interest payments, and debt dynamics.

Euro Area banking sector reform, deeper but fragmented capital markets, and a more assertive military will improve the Euro’s perception across the world. However, traditional trade, historical, language, and migration dynamics guarantee a growing role for the Euro going forward.

Innovation Is a Major Asset for the EU

Innovation in payment and clearing systems will create a more activist role for the Euro. Meanwhile, the weaponization of the dollar through sanctions is pushing European policymakers to look for institutions. When France sent Iran 17 billion, or when the U.S. threatened banks that funded the U.S.—Russia Nord Stream Two pipeline with sanctions? This has led to a flurry of new systems such as Single Euro Payments Area (SEPA), Cross-Border Interbank Payment System (CIPS), and Structured Financial Messaging System (SFMS) — India, forcing both Europe and Asia to find non-dollar alternatives to payments and clearing. Bypassing the dollar will increase accessibility and reliability of the Euro in international payments, especially as new alliances in the East and the global South are pushing for diverse systems that mitigate any country’s exploiting its dominance. At the G20 in South Africa, President Cyril Ramaphosa of South Africa reinforced this call, to much fanfare and applause. But Africa is innovating — not to use the Euro — but to make it easier to trade using its own currencies. However, because much of Africa’s trade happens with Europe, the Euro will inevitably surpass the dollar over the long run.

Geopolitics

 Russia’s illegal and unjustified war in Ukraine, Israel’s obliteration of Gaza, Sudan, Cameroon’s Anglophone crises, the Rohingya Muslims and political breakdown, and the legitimization of authoritarianism across much of Africa, the U.S., and Europe have caused some financial soul-searching. The bifurcation of the East and West has created a rift along ideological lines, but the growing EU-US rift on values (legitimate or otherwise) has caused the EU to accelerate the push to make its currency global. Disagreements over common or shared values around human rights and the right to self-determination mean the Euro must ensure its claim to legitimate global values is followed by a widely used currency. As Africa calls for a greater role in the U.N. Security Council, multilateral institutions, and the global financial architecture, there is a unique chance for the Euro to increase the adoption and use of its currency.

Institutions

Over the last decade, the European Central Bank and the European Commission have taken some steps to address economic issues, which have invariably made the Euro more global. The European Commission has actively called for the completion of the banking union to reduce investor bias, deepen capital markets, and limit contagion risks linked to the sovereign-bank doom loop. It is progressing very slowly. Basel requirements, coupled with fragmented financial systems, require a more coherent push to accelerate financial integration. Meanwhile, the issue of debt mutualization and the suspension of fiscal rules is a double-edged sword. On the one hand, this could increase trust in the Euro, but some argue that it could limit risk perception, which could only become more evident during a crisis. However, the creation of the digital Euro, the banking union, and mutualized debt will create a larger and deeper financial market. With the risk of default low across Euro Area countries, mutualization could support long-term debt issuance, which could create long-term trust in the Euro.

The Euro should use its influence across institutions more clearly. Over 60% of Central African FX reserves are kept in the French Central Bank. Europeans can incentivize payments in the Euro as opposed to the dollar by lowering transaction costs for Euro payments and raising them for the dollar — without much fanfare. This is not neo-colonialism. Neocolonialism is allowing Africans to pay more for cross-border currency transfers instead of lowering transaction costs and increasing the role of the Euro. Where institutions lead the change, markets will follow. Cameroon should trade with France, Italy, and the Netherlands using the dollar. It makes little sense, and there should be an active policy to change this.

Conclusion

Can the Euro outpace the dollar in global trade and finance? Not yet, however, there is every incentive for the Euro to become a more dominant currency. The Euro is the second or third trading partner for at least 60% of African countries, it will emerge as the largest donor of aid if US AID falters, and its role in multilateral institutions should be used to support a more activist role for the Euro. For example, Europe-approved aid should be disbursed in Euros, trade between Africa and Europe should be cleared in the Euro (this has begun timidly), and the EU should accelerate the creation of non-dollar settlement and clearing systems.

Author

Henri Kouam

Founder & Executive Director