The coronavirus crisis may have dealt a lethal blow to the idea that the euro could one day replace the dollar as the world's preferred currency, by exposing euro zone frailties and cementing the U.S. Fed's role as global lender of last resort.
and lags the dollar in international borrowing. Latest SWIFT data shows it accounts for 31% of global payments versus over 40% in 2012. The dollar's share has risen to 44% from 30%.The world’s dollar dependence was underscored during the March market panic when businesses dashed for greenback liquidity to pay bills, redeem debt or just increase their buffers.
To other countries which needed emergency dollars, it offered repo loans, if they had Treasury bonds to post as collateral. In recent months the ECB has only established swap lines with Bulgaria and Croatia, but “there isn’t a similar conversation about what happens if euro funding dries up,” she added.Since the euro’s birth in 1999, its backers have pushed to end the dollar’s post-World War Two dominance. The calls got louder when President Donald Trump resorted to weaponising the dollar in overseas dealings, such as the trade spat with China or while re-imposing sanctions on Iran.
But it also offered a chance to address one of the euro’s drawbacks for reserve managers: the lack of a big pool of ‘safe’ assets, comparable with U.S. Treasury bonds. Backing for the Franco-German recovery fund plan may lay the foundation for joint euro bonds, which could eventually offer reserve managers a viable risk-free alternative to Treasuries.
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