States can use international monetary systems – and the leading role of their national currencies – as an instrument of power (Kirshner 1995). Since no global currency as yet exists, international trade, transnational investments and cross-border payments require the intermediation of national currencies. Therefore, an international currency fulfils the
three main functions of money: as a medium of exchange, as a store of value and as a unit of account. As some national currencies are used disproportionately for these purposes, any international currency potentially holds global political and geostrategic value. In the early days of the Maastricht Treaty, the European Central Bank (ECB) made it clear that price stability was its main policy target. Since the internationalisation of the euro was not considered a policy objective, the ECB stressed that it would have neither fostered nor hindered the global use of the common currency (ECB 1999). For many years, then, the European Union has lacked the necessary political will to promote the internationalisation of the euro.
However, the 2018 “Towards a stronger international role of the euro” communique of the European Commission (2018) identified increasing euro internationalisation as a key dimension of its political goal of strategic autonomy (Damen 2022). The global appeal of a currency depends on fundamental economic forces – such determinants include, for instance, the size of the issuing economy in terms of global trade and finance, the soundness of its economic policies, financial-market depth and liquidity (Frankel 2008; Chen et al. 2009; Li and Liu 2008). An incomplete banking union, transnational fiscal policies and the still-unfinished capital-markets union exacerbate, by virtue of their incompleteness, the way in which trade and current-account flows underscore an international currency. Furthermore, a burgeoning literature additionally stresses that the choice is also driven by underpinning institutional and geostrategic factors (Kindleberger 1970; Strange 1971, 1988; Kirshner 1995; Williamson 2012; Cohen 1998, 2015; Liao and McDowell 2016). The low degree of political and economic integration in fundamental dimensions – such as the lack of common safe assets or of a common foreign policy – is, then, currently undermining the global adoption of the euro. As a result, the EU is still extremely dependent on the US dollar. While the euro is the second most important international currency, it continues to lag behind the US dollar by a wide margin (Cohen 2009). For example, 48.1 per cent of extra-EU imports were invoiced in US dollars in 2020 with only 38.2 per cent in euro (Eurostat 2022). This gap is more remarkable in the context of the Union’s external energy bill. Despite being the largest energy importer in the world, 80–90 per cent of EU long-term import contracts are not referenced in euro (Wilkinson et al. 2022).
Moreover, the EU is highly dependent on foreign payment systems. With the rapid and widespread adoption of cashless payment solutions and with the rise of cryptoassets, the EU is concerned at its own increasing dependence on non-European private actors for a critical infrastructure of its economy, and fears becoming vulnerable to economic and
political risks. Unsurprisingly, the Union considers the global adoption of national Central Bank Digital Currencies (CBDCs) to represent a unique window of opportunity. With the growing digitalisation of the economy, a digital euro is seen as a tool to mitigate risks related to old and new foreign-payment systems and to the emergence of foreign CBDCs (Panetta 2020, 2022).
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This article was prepared by the author/s. The views expressed in this article are the author’s own and do not necessarily reflect the views of the Digital Euro Association.