As American and European policymakers know well, global currency dominance and exchange rate movement are different things. But there's a decent argument that Europe's push to widen euro usage necessarily involves some revaluation of the single currency. As Transatlantic ties fray and European Commission President Ursula von der Leyen warned of lines that "cannot be uncrossed" after President Donald Trump's bid for the U.S. to acquire Greenland, European Union leaders and finance chiefs this past week have launched another push to bolster the bloc's economic clout and reposition its defense. The Week in Breakingviews newsletter offers insights and ideas from Reuters' global financial commentary team. Sign up here. Advertisement · Scroll to continue
With the Munich Security Conference as the backdrop, an informal EU summit last week brought renewed impetus to deepen European capital markets integration. Leaders also discussed possibly expanding joint euro debt sales and - led by the European Central Bank on Saturday - widening euro access, liquidity and financing worldwide. Some of this has been on the table before. But the urgency for action is now evident in a willingness for a two-speed advance with six core countries - Germany, France, Italy, Spain, the Netherlands and Poland - in the vanguard if agreement among the 27 is too cumbersome or slow. An EU6 summit is due early next month. Advertisement · Scroll to continue The plans are likely necessary, even if not yet sufficient, to expand the role of the euro and allow it to absorb some of the nervousness about the world's overexposure to dollars at a time of enormous U.S. political and economic upheaval. Whether that greater global role brings a less welcome appreciation of the euro's value is another question. Euro/$ FX rate and the euro's share of world reserves Euro/$ FX rate and the euro's share of world reserves As finance chiefs on both sides of the Atlantic ponder the potential for at least some shift in the scale of dollar dominance in reserves, trade, invoicing and commodity pricing, they have differing takes on any related exchange rate fallout. Trump's administration sees a "strong dollar" primarily in terms of the currency's reach and pervasive use in cross-border finance - an extension of American power unrelated to the ebbs and flows of the exchange rate itself. The presumption is that the Trump team sees an unwinding of the dollar's overvalued exchange rate as an integral part of its global trade reset.
Currency experts, such as Cornell professor and former IMF official Eswar Prasad, think a gradual weakening of the dollar's exchange rate is possible without damaging its international dominance.
