Global Studies

After nearly a century of dominance of the international monetary system, has the U.S. dollar finally met its match in the euro? When Europe’s Economic and Monetary Union (EMU) came into existence in 1999, many observers predicted that the euro would soon join America’s greenback at the peak of global finance. Achievements, however, have fallen short of aspiration. After an initial spurt of enthusiasm, international use of the euro actually appears now to be leveling off, even stalling, and so far seems confined largely to a limited range of market sectors and regions. The euro has successfully attained a place second only to the greenback – but it remains, and is likely to remain, a quite distant second without a determined effort by EMU authorities to promote their money’s global role. The temptation will surely be great. In practical terms, it is difficult to imagine that EMU authorities will refrain entirely from trying to promote a greater role for the euro. But that, in turn, could turn out to be a recipe for discord with the United States, which has never made any secret of its commitment to preserving the greenback’s worldwide dominance. A struggle for monetary leadership could become a source of sustained tensions in U.S.-European relations. Fortunately, however, there seems relatively little risk of a destabilizing escalation into outright geopolitical conflict.