Euro Wants to Knock Dollar Off World Currency Pedestal: Risks for Russia Named

The intrigue growing on the currency market may be deeper than it seems at first glance. The main question that worries many in Russia now is: will the dollar be able to consolidate below the “psychological threshold” of 80 rubles?

But it is not the only one. The second, already global question concerns the future relationship between the American and European currencies. The conflict between the interests of the US and the EU is obvious, so it is curious whether it will be reflected in the dollar and euro rates. Alexander Razuvaev, a member of the supervisory board of the Guild of Financial Analysts and Risk Managers, told MK which scenario would be more advantageous for Russia.

— Will the European currency be able to take over global leadership?

— Frankly speaking, in 1999, when the euro currency was launched, this is exactly what its creators wanted. Moreover, it was assumed that a united Europe would have a common foreign and defense policy. And some pro-Western experts in Russia at that time even said that over time our country could join the euro zone, that is, in fact, share its own sovereignty with Europe.

- This is all history of days long past. And what is happening on the currency market now?

— The topic of the euro knocking the dollar off the top of the financial world has suddenly taken on new colors. French President Emmanuel Macron believes that the European currency has the potential to replace the American currency as the world’s main reserve currency. After the euro jumped against the dollar, the head of the Fifth Republic asked European Central Bank (ECB) President Christine Lagarde about the exchange rate outlook. According to Bloomberg, sources familiar with the talks, Macron and Lagarde had private conversations in Brussels in March.

— Does the euro currently have fundamental grounds to knock the dollar off the financial Olympus?

— This issue causes a lot of discussion in the professional financial community. There are many countries in the euro zone, their interests are quite different, but the currency is the same. There are huge differences in the financial and economic situation even of, for example, such large countries as Germany and Italy. If the first has a small public debt and a reputation as a reliable borrower, then in the second, the topic of either default or a program to support the national economy from outside is periodically raised, as was the case with Greece during the crisis of 2012.

— There are no such problems in America?

— The US is much richer than Europe: the poorest US states are economically superior to the richest European countries. Of course, we are talking about a comparison based on current exchange rates: the real standard of living does not differ that much, but this indicator is appropriate for comparing the influence of economies on the world stage.

But there are more specific reasons. The government bond market in the eurozone is much less liquid in principle. The volume of US debt securities in circulation is several times higher than European figures: $900 billion per day. At the same time, there are very few eurozone securities on the market. After 2020, when Brussels issued debt securities worth 750 billion euros as a measure to combat the consequences of the pandemic, the issue was stopped. The main assets denominated in euros will be obligations of different countries of very different quality.

— So what will happen to the status of the dollar in the coming years in this case?

— To understand this, we need to recall recent events. The US imposed sanctions against the Moscow Exchange and froze Russian investments in America. These are more sanctions against the dollar than against Russia. It is unclear what the previous US administration was thinking. These decisions will probably be revised soon. It is safe to say that the US dollar will remain the leader of the world reserves market for some time. If the situation worsens, the role of the dollar will probably decline, but a scenario of a multicurrency system is much more likely. But even in this case, no one will be able to replace the dollar on the financial Olympus.

— In other words, Macron and Lagarde’s plans are not destined to come true?

— The situation in the EU economy is very complicated. If any of the eurozone countries leaves the monetary union, i.e. recalculates its sovereign debt into its local currency, this will mean default and a banking crisis in Europe. Demand for gold, the dollar, and American sovereign bonds will increase sharply. Russia will not suffer much from the European crisis due to sanctions.

— But we see how much work the EU authorities are doing to maintain the cohesion of Europe. And talk about the possibility of strengthening the euro by reducing the status of the dollar is not coming out of nowhere. If Macron and Lagarde do come up with a way to make the euro the main currency of the world, how will this affect the Russian economy, since our country's confrontation with the EU is now stronger than with the US?

— There are several scenarios for the development of events to consider here. The first is the most positive. If our country manages to calm Europe down or weakens itself due to an obvious loss in the geopolitical confrontation, not only with Russia but also with the United States, then the situation may even roll back to what it was before 2014. Our citizens will calmly travel to Europe for vacation, exchange euros and enjoy life. If the ruble is strong relative to the euro, then this will be beneficial to everyone.

— Now such a scenario seems completely unrealistic...

— Yes, but we can’t discount it. However, if we talk about a more realistic development of events, then, frankly speaking, it is advantageous for Russia to see the eurozone disintegrate into separate states, each of which will have its own currency. It is much more convenient for our country to build relations directly with each of them, that is, in a bilateral format, bypassing Brussels and other EU structures. In principle, the world is tied to the dollar, so there is already one reserve currency. There is no need for a competitor here. Russia’s relations with the US are now normalizing, and I believe that they will become even better in the future. Both trade and investment in dollars are comfortable. If we suddenly imagine that the euro will replace the dollar, then with the current relationship between the European Union and Russia, with sanctions packages, with the confiscation of money in bank accounts from people and companies, this is an increasingly big headache. It is more advantageous for us for the dollar to remain the leader, and most likely it will be so.