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The European Central Bank might take a more active role in trying to increase the use of the euro in international transactions, French central banker Francois Villeroy de Galhau signaled on Tuesday.
A more widespread use of the common currency would help protect European companies against foreign-exchange risks and legal disputes abroad, Villeroy told a conference in Paris, noting that its global share has declined and remains limited since the financial crisis of 2008-2012.
“The U.S. dollar is a clear advantage in the exercise of American power, while China cares about the internationalization of the renminbi,” said Villeroy, who is among the front-runners to become the next ECB president. “Hence, one might expect the ECB to shift from its past neutrality towards a more positive tone on the international expansion of the euro.”
While the ECB has previously called for a stronger global role for the 19-nation currency, it’s generally taken a hands-off approach, leaving it to markets to decide. But tensions around Iran and rising U.S. protectionism have shown that the dollar’s dominance is increasingly becoming a problem in Brussels, as it limits the bloc’s room to achieve foreign policy objectives.
Even though the European Union is the world’s second biggest economic power, it has to pay in dollars for most of its overseas purchases. A strong role for the euro would also improve how ECB’s monetary policy is transmitted across the financial markets.
Villeroy said Europe needs to build a genuine capital markets union for the euro to stop punching below its weight. That means “development of fully unified European instant payment systems, integrated capital markets, and the possible creation of a safe euro-denominated asset,” he added.