The Euro is Still a Better Reserve Currency

The euro has fallen 12 per cent against the dollar since December, leading some to question the euro’s value as a global reserve currency. Yet as the following chart from Clemens Kownatzki shows, such fears are overblown.

The data show the euro-dollar relationship all the way back to 1972, using a currency basket to derive values prior to 1999. As one can see, since the end of Bretton Woods, European currencies have gradually strengthened against the dollar and the long-term trend is up.

Even if the panic continues and the euro troughs at 1.1 or even at parity with the dollar, this would still imply an upwards historical trendline. Given Europe’s low inflation, lower budget deficits and more robust trade figures, this trend is likely to continue over the decade, even if the short-term trend is clearly down.
Posted in: EU