FXTRADING Financial Focus (Asia-Pacific 02/09)The European Union reconsiders the euro’s strategic

An internal policy paper prepared for euro area finance ministers shows that, against the backdrop of persistent turbulence in the global financial landscape, discussions aimed at boosting the international use of the euro and strengthening Europe‘s own economic and financial security are set to begin in mid-February. The document directly reflects the real pressures arising from escalating trade frictions, repeated debates over the dollar’s safe-haven status, and the rapid evolution of payment technologies.

Although the euro remains firmly established as the world‘s second-largest reserve currency, the gap with the US dollar is still substantial. Enhancing the euro’s international role is not merely a matter of financial competition; it is also closely tied to the EUs leverage in trade, sanctions, the projection of values, and the execution of external policy. Wider global use of the euro could help European companies reduce exchange-rate volatility and financing costs, thereby strengthening the overall resilience of the economy.

In terms of concrete pathways, the EU is turning its attention to the digital finance sphere. The paper recommends that member states seriously assess the feasibility of issuing euro-denominated digital assets, including stablecoins, tokenised deposits, and central bank digital currencies, while at the same time guarding against the potential risks posed by the expansion of foreign-currency stablecoins within Europe‘s financial system. At present, the stablecoin market is almost entirely dominated by dollar-based assets, with euro-related products accounting for only a minimal share. This structure not only weakens the euro’s influence but may also encourage a continued flow of European capital into US assets.

Beyond digital currencies, the document argues for greater use of EU-level joint debt issuance to finance projects with clear European added value, while also encouraging governments and companies outside the euro area to issue euro-denominated bonds, thereby expanding the supply of euro-based assets. Market participants widely believe that larger and more liquid EU joint debt could become a high-quality asset recognised by global investors, although this direction still faces political resistance from some member states.

On the supporting mechanisms for currency internationalisation, the paper notes that if the European Central Bank were able to extend liquidity arrangements to a broader range of third countries, the euros appeal in cross-border settlement and reserve frameworks would increase accordingly. Sources indicate that the ECB has already begun preparatory work in this area, suggesting that the international use of the euro may gradually extend beyond trade settlement into the realm of financial safety nets.

The document also broadens its focus to the real economy and institutional structures. The EU hopes that more external aid, lending, and trade in key commodities will be denominated in euros, while reducing excessive reliance on existing international payment networks and promoting the development of Europes own payment systems. Member states are urged to dismantle barriers to the movement of goods, services, and capital, activate the large pool of savings sitting within the banking system through unified rules, and channel more funds toward businesses and long-term investment projects.

Finally, the paper puts forward a more structural proposal: transforming the European Stability Mechanism into an EU-level institution and granting it the authority to issue EU debt on a unified basis. This would simplify debt management structures at an institutional level and enhance the recognisability and credibility of EU assets in global markets. If these reforms are gradually implemented, the euro‘s pricing power and safe-haven attributes in international markets could undergo tangible changes. From an FXTRADING perspective, this would not only reshape the euro’s medium- to long-term valuation logic, but also introduce new variables into volatility across major international markets.