Euro’s global moment remains unfulfilled, ING says

The euro has yet to realize its long-anticipated potential as a global reserve currency, according to analysts at ING. Despite periodic gains and increased international use, structural barriers continue to limit the single currency’s broader adoption on the world stage.

ING’s assessment of the euro’s international role

In a recent research note, ING economists highlighted that while the euro remains the second most important reserve currency after the U.S. dollar, its share of global reserves has stagnated near 20% for years. The analysts pointed to several persistent hurdles, including the absence of a unified euro-area safe asset, fragmented capital markets, and limited geopolitical heft compared to the United States. ING noted that recent geopolitical shifts and efforts to deepen European integration have not yet translated into a meaningful increase in the euro’s reserve status.

Why the euro’s moment remains elusive

The euro’s role as a global currency has been a topic of debate since its inception. Proponents have long argued that the currency union, representing a large and open economy, should naturally attract greater international use. However, ING’s analysis suggests that structural weaknesses within the euro area itself are holding it back. The lack of a deep and liquid market for euro-denominated sovereign bonds that can serve as a safe asset comparable to U.S. Treasuries remains a critical gap. Additionally, the European Central Bank’s policy framework and the absence of a full banking union reduce confidence among foreign central banks and investors.

Implications for investors and policymakers

For investors, the euro’s limited reserve status means that the dollar is likely to remain dominant in global trade and finance for the foreseeable future. This has implications for currency hedging, portfolio diversification, and the pricing of commodities. For European policymakers, ING’s analysis underscores the need for deeper fiscal and financial integration if the euro is to challenge the dollar’s hegemony. Without such reforms, the euro’s global moment may remain unfulfilled.

Conclusion

ING’s assessment provides a sobering reality check for those expecting a rapid rise in the euro’s global standing. While the currency has made incremental progress, significant structural obstacles remain. The euro’s future as a major reserve currency will depend on concrete policy actions rather than market momentum alone.

FAQs

Q1: What is the current share of the euro in global reserves?
According to the IMF and ING, the euro accounts for roughly 20% of global foreign exchange reserves, making it the second most held currency after the U.S. dollar.

Q2: What are the main barriers to the euro becoming a global reserve currency?
Key barriers include the lack of a unified safe asset, fragmented capital markets, incomplete banking union, and the euro area’s limited geopolitical influence compared to the United States.

Q3: Could the euro eventually challenge the dollar’s dominance?
ING analysts suggest that while possible in the long term, it would require significant structural reforms within the euro area, including deeper fiscal integration and the creation of a genuine common safe asset.