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The Mirage of a Global Euro

When the euro was introduced a generation ago, European leaders envisaged a common currency that would come to rival the US dollar as a second global reserve currency. That hope has failed to materialize – an outcome that European leaders would be wise to welcome.

BRUSSELS – One of the great claims made for the euro was that it would rival the US dollar as a second global reserve currency. These hopes have failed to materialize. The euro’s importance in global reserves and financial markets today is about the same as it was two decades ago, when the euro replaced the Deutsche Mark and ten other national currencies.

But hope dies last, and in this spirit the European Commission recently published a Communication entitled “Towards a stronger international role of the euro” (sic). The European Commission, like most European policymakers, takes it as given that the eurozone would benefit if the euro played a more global role. But that is not necessarily true.

One such benefit supposedly derives from the widespread use of euro banknotes outside the single-currency area. On this measure at least, the euro has been a big success. Currency in circulation has more than doubled over the last 20 years, both in absolute terms and as a percentage of eurozone GDP, and the total value of euro banknotes in circulation amounts now to €1.2 trillion ($1.3 trillion). Furthermore, it is commonly estimated that a large fraction of euro cash is used outside the eurozone.

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