Global domination of the american dollar and implications on Euro zone members

Nikolić Goran (Institut za evropske studije, Beograd), goranvnikolic@gmail.com
Zvezdanović Lobanova Jelena (Institut društvenih nauka, Beograd), jzvezdanovic@idn.org.rs
Ćurčić Petar (Institut za evropske studije, Beograd), petar.pero.curcic@gmail.com

The analysis of the most important macroeconomic indicators shows the hegemony of the dollar and the position of the euro as the second most important currency in the international financial system. As a reserve currency for central banks, a means of accumulation, and a transaction currency (which are the main factors determining the degree of internationalisation of a given currency), the dollar dominates, while the euro takes second place. Although the euro’s participation is significant in many market segments, especially in payment transactions via SWIFT, it is still in many respects a regional currency. It seems certain that the dollar will continue to hold a key place in the global economy. The US still has liquid and deep financial markets; the convertibility of the currency is unquestionable; there is still, despite the sanctions imposed on numerous countries, a significant level of legal predictability; and perhaps most importantly, American military supremacy is successfully maintained, despite certain challenges. Given that the European Union (EU) is not a state in the classical sense of the word, the full implementation of plans to increase the international role of the eurozone currency would eventually allow for a limited increase in the share of the euro in official reserves, trade, and financial transactions. Consequently, the optimal way to maintain the long-term role of the euro as one of the world’s leading reserve currencies is possible through the status of the so-called “shadow hegemon”, where the dominance of the dollar would be unquestionable. An alternative path to maintaining the current position of the euro is possible through the emergence of a multipolar currency system, which implies a strong strengthening of the importance of the Chinese currency. What the Eurozone countries must do in both scenarios, in addition to the indispensable establishment of a banking union, is to create a critically large supply of common Eurobonds, which would facilitate the development of liquid and deep financial markets essential to support the euro in times of crisis.

Keywords: international financial system, dollar, euro, euro area, global economy