Gabriel Makhlouf of ECB: The Euro Isn’t Ready to Dethrone the US Dollar as the Global Reserve Currency

• Why Does Makhlouf Believe the Euro Can’t Replace the Dollar?
• What Structural Reforms Does the Eurozone Need?
• Is the Dollar’s Reign Really Unshakable?
• How Could the ECB Boost the Euro’s Global Role?
• FAQ: Key Questions on the Euro-Dollar Debate

Gabriel Makhlouf, a key figure on the European Central Bank’s (ECB) Governing Council, has poured cold water on the idea of the euro replacing the US dollar as the world’s dominant reserve currency. Speaking at an economic conference in France, Makhlouf highlighted Europe’s lack of structural and fiscal integration as the primary hurdle. While the euro remains the second-most-traded currency globally, its fragmented fiscal policies and absence of a unified SAFE asset akin to US Treasuries limit its appeal. This article dives into Makhlouf’s arguments, the euro’s challenges, and why the dollar’s supremacy isn’t under immediate threat—despite growing global demand for alternatives. ---

Why Does Makhlouf Believe the Euro Can’t Replace the Dollar?

Gabriel Makhlouf, who also serves as Ireland’s central bank governor, minced no words at the Aix-en-Provence economic forum: “The euro isn’t ready to challenge the dollar.” His reasoning hinges on five critical gaps in the Eurozone’s architecture:

1. No Unified Fiscal Authority : Unlike the US, the Eurozone lacks a central treasury or federal budget system. This fragmentation undermines investor confidence. 2. Missing Safe Assets : Euro-denominated bonds (e.g., German Bunds) lack the liquidity and scale of US Treasuries, which are the backbone of global reserves. 3. Incomplete Banking Union : Cross-border capital flows remain sluggish due to unresolved regulatory disparities among EU member states. 4. Political Divisions : National interests often override collective EU economic strategies, as seen in debates over joint debt issuance. 5. Limited Global Trust : Historical volatility (e.g., the 2011 debt crisis) still haunts the euro’s reputation as a stable store of value.

Makhlouf’s blunt assessment aligns with data from TradingView, which shows the dollar accounting for 58% of global reserves in 2024, while the euro stagnates at 20%.

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What Structural Reforms Does the Eurozone Need?

Makhlouf’s call for “deeper EU integration” isn’t new—but his urgency is. He outlined four non-negotiable reforms:

- Common Fiscal Tools : A Eurozone-wide budget to stabilize economies during shocks, akin to the US federal system. - Capital Markets Union : Harmonizing investment rules to rival Wall Street’s depth. The ECB estimates this could unlock €470 billion annually. - Debt Mutualization : Controversial but critical—joint bonds (e.g., “Eurobonds”) to create a liquid safe asset. - Crisis Management : A permanent fiscal backstop for banks, reducing reliance on ad-hoc measures like the 2012 European Stability Mechanism.

“These aren’t optional,” Makhlouf stressed, citing CoinGlass data showing how dollar dominance amplifies Europe’s vulnerability to Fed policy shifts.

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Is the Dollar’s Reign Really Unshakable?

While the euro stumbles, the dollar’s supremacy faces its own headwinds. Consider these counterpoints:

1. De-Dollarization Trends : BRICS nations are increasingly settling trade in local currencies (e.g., China-Russia yuan/ruble deals). 2. Digital Currencies : China’s digital yuan and the ECB’s digital euro pilot could reshape cross-border payments. 3. US Debt Concerns : With US national debt at $34 trillion, some investors (per BTCC analysts) hedge with gold or crypto. 4. Geopolitical Shifts : Sanctions on Russia have spurred alternatives to dollar-based SWIFT transactions. 5. Euro’s Regional Strength : The currency’s share in global trade invoicing has risen to 38%, per ECB reports.

Yet Makhlouf remains skeptical: “Dollar alternatives are growing, but none match its network effects—yet.”

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How Could the ECB Boost the Euro’s Global Role?

Makhlouf proposed three bold ECB actions:

1. Aggressive Market-Making : Expand bond-buying programs to deepen euro-denominated asset liquidity. 2. Strategic Currency Swaps : Partner with central banks in Africa and Asia to promote euro usage. 3. Digital Euro Acceleration : A CBDC could streamline international settlements, bypassing dollar intermediaries.

“The window won’t stay open forever,” he warned, alluding to competition from China’s yuan and even cryptocurrencies.

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FAQ: Key Questions on the Euro-Dollar Debate

Why can’t the euro compete with the dollar today?

The Eurozone lacks unified fiscal policies, a DEEP safe-asset market, and political cohesion—all of which underpin the dollar’s dominance.

What’s the biggest barrier to euro adoption?

Investors crave stability. Without a Eurobond market rivaling US Treasuries, the euro remains a second-tier reserve asset.

Could cryptocurrencies threaten both currencies?

Unlikely short-term. As per BTCC research, crypto’s volatility and regulatory uncertainty limit its reserve-currency potential.