A key objective of President von der Leyen’s “geopolitical” EU Commission is improving the international role of the euro. The Juncker Commission had put this old idea back on the agenda, motivated by crumbling transatlantic relations during the Trump Presidency and the desire to challenge the global USD hegemony. Geopolitics re-appeared stronger than anyone could have wished for in February 2022 when Russia attacked Ukraine and the West passed unprecedented financial sanctions—including the freezing of Russian FX reserves held at Western central banks. To assess what these changes imply for euro internationalization and concomitantly USD hegemony, we develop a theory of currency internationalization that—drawing on the conceptual framework of Murau and van ‘t Klooster (2022)—places the use and creation of private offshore credit money center-stage. In our view, euro internationalization must imply the political promotion of the use and creation of offshore euro rather than offshore USDs. We discuss the potential of an EU “monetary foreign policy” which focuses on the euro’s use as vehicle currency in global value chains; the denomination of key commodities (chiefly oil); the integration in central bank payment systems (notably TARGET2); and the availability of international lender of last resort facilities (notably EUR swap lines).
Presentations at the Annual Convention of the International Studies Association (ISA) in Montreal (03/2023) and the Annual Conference of the Political Economy Section of the German Association for Political Science in Witten (09/2023).
Jens van ‘t Klooster, University of Amsterdam