Science, economy, geopolitics, climate … There is almost no area where Donald Trump has not decided to intervene, overwhelming, in passing, sometimes old balances. To achieve its ends, the method is often brutal, sometimes unorthodox, always disconcerting. And even if the decisions announced are in contradiction with the targeted objective. This is the case for the dollar. The greenback, symbol of American domination, already obeyed the billionaire during his first mandate. His thesis: this strong currency night in the competitiveness of the United States.
Since his return to power, his speech has not varied. Donald Trump even seems to want to go up a gear. But with a certain inconsistency. “The dynamics he follows may seem contradictory. He wants a powerful and conquering dollar, while trying to make him more competitive. However, he does not question his privilege as a global reserve currency. He wants to have butter and money of butter”, is surprised Christian de Boissieu, professor emeritus at Paris 1 University and author of The new currency war (Odile Jacob).
Behind the scenes, it is Stephen Miran, the boss of the Committee of Economic Advisors of the White House that whisper his ideas in the President’s ear. In November 2024, the economist published a remarkable test entitled “User guide for the restructuring of the global trade system”. In this forty pages document, he said in particular that the dollar tended to be overvalued. A misleading statement, according to Olivier Garnier, chief economist of the Banque de France and who goes against what was previously defended on the side of Washington. “Traditionally, the American administration-as the Treasury Secretaries have often repeated-defends the idea that a strong dollar is in the interest of the United States,” he said.
Can the euro get out of it?
This new doctrine could ultimately be happy … from the euro. “If American policy becomes even more unpredictable and disorderly, the hegemony of the dollar could evolve,” anticipates Raghuram Rajan, former IMF economist and former governor of the Central Bank of India, now a finance professor at the Booth School of Business of the University of Chicago.
For Eric Dor, director of economic studies at IESEG, it is no longer even fanciful to think that the euro could end up supplanting the dollar as the main international reserve currency. The global monetary system currently works as a duopoly. The greenback remains sovereign and represents 59 % of the exchange reserves held by central banks, compared to 20 % for the euro. Far behind, come the yen, the pound sterling and the yuan. “The dollar retains a considerable advance, even if it has lost ground. In 2000, it constituted 70 % of the world’s reserves. The transition is slowly, but a rebalancing seems inevitable over the next ten years,” said Christian de Boissieu.
The euro had reached its highest level in 2010, at 28 %, before the sovereign debt crisis – notably involving Ireland, Portugal and Spain – comes to jostle it. “History shows that these dynamics follow very long cycles. There have been very few truly international currencies in history, and it would be premature to affirm that the dominant status of the dollar is collapsing, tempers Olivier Garnier. During the creation of the euro, we already mentioned its potential to compete.”
Brakes to lift
But with the arrival of Donald Trump, the cards are rebatted. If it is only the measures announced are likely to produce effects contrary to what he says he wants to defend. “Customs duties, which reduce trade in the United States with the rest of the world, will eventually limit the use of the dollar in international transactions, and not only in exchanges directly involving the country. If the United States becomes an economic, financial and political partner deemed unreliable, other states will seek to reduce their dependence on the American currency”, predicts the economist Barry Eichengreen, Professor in Berkeley.
Despite Donald Trump’s boost, the euro will still have to lift several brakes to pass a course. “If Europe really wants to consolidate the international role of its currency, it must imperatively progress in matters of political and economic governance of the euro zone. The Greek crisis had aroused questions about the viability of the single currency, but this debate is closed today. For the euro to gain ground, it is essential to avoid new crises of sovereign debts and to strengthen the economic and financial integration of the Euro zone” Boissieu.
Unlike the United States, which emit treasury bills, there are as many public debt markets in the European Union as there are members. As for investors and central banks, they are very sensitive to the sustainability of European debts. “They focus mainly on quality sovereign obligations (noted AAA). However, in the euro zone, only five savings have this note, according to rating agencies,” notes Barry Eichengreen. “There is also the question of contagion effects, adds Raghuram Rajan. Some very indebted countries, such as Italy and France, have a negative impact on the debt of the Netherlands or Germany? This type of problem does not exist in the United States, where the debt is guaranteed by a single sovereign entity backed by a diversified economy”.
The European defense turning point could however play in favor of the Euro. “A first step towards greater mutualisation was taken during the COVID crisis with the Next Generation EU initiative, which allowed the European Union to collectively borrow 750 billion euros. Today, the idea of a second loan is on the table, marking a trend towards more community debt,” notes Christian de Boissieu. And more debt issued by Europe, it is more euros in the global reserves of investors. Another motivation to launch a new big loan?
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