Brussels lays plans for euro to challenge dollar’s dominance
More than 80 per cent of the EU’s energy imports are priced and paid for in US currency
The European Commission is targeting the dominance of the dollar in the international financial system, noting that it has become “the predominant currency for derivative operations”.
Brussels is to set out plans to increase the use of the euro in “strategic sectors” such as energy, commodities and aircraft manufacturing, in a bid to challenge the dominance of the US dollar as the world’s reserve currency.
The European Commission will on Wednesday publish a blueprint to promote a “stronger international role” for the euro, saying policies pursued by Donald Trump have underlined the need to increase the EU’s economic sovereignty.
In a draft seen by the Financial Times, Brussels will stress the need to act faced with “recent challenges” to “international rules-based governance and trade” - a veiled reference to the Trump administration’s aggressive trade policies.
The blueprint calls for more political pressure for energy contracts to be denominated in the single currency. It also advocates channelling euro-denominated financial trades through registered platforms and encouraging the development of an EU payment system.
Brussels wants EU capitals to ensure that contracts concluded “within the framework of intergovernmental energy agreements” are denominated in euros. More than 80 per cent of the EU’s energy imports are priced and paid for in US dollars.
The issue of currencies used for energy sales has taken on fresh importance because of European efforts to preserve a deal with Iran to curb Tehran’s nuclear activities.
The US has pulled out of the deal and Brussels will say that Mr Trump’s attempts to weaponise the dollar by imposing sanctions on European companies still doing business with Tehran should be a “wake-up call regarding Europe’s economic and monetary sovereignty”.
The EU has struggled to circumvent the US sanctions on Iran, with French-backed plans to create a “special purpose vehicle” running into practical difficulties including the reluctance of countries to host it.
The draft EU paper underlines that there are “targeted measures” at the bloc’s disposal to promote the euro and win more “autonomy”.
The commission is targeting the dominance of the dollar in the international financial system, noting that it has become “the predominant currency for derivative operations”.
Brussels’ plans include widening the scope of rules that require some derivatives contracts to be traded via platforms known as clearing houses, so as to promote the creation of liquid pools of euro-denominated securities.
Its proposals are set to be discussed by EU leaders at a summit meeting in Brussels later this month.
Brussels will argue that promoting the global use of the euro reflects the bloc’s “political, economic and financial weight” in a more multipolar world.
The policy plans include providing technical support to African countries that want to use the euro as their international payment currency, as well as steps to encourage “European bodies and mechanisms . . .to increase their share of debt denominated in euro”.
The commission is also concerned about “the market dominance” of a small number of international payment card schemes, saying that this means the processing of intra-European transactions often takes place outside the EU.
Brussels will warn that this causes “unnecessary vulnerabilities” and say that it plans to explore ways to spur the development of an EU-wide “instant payment solution”.
– Copyright The Financial Times Limited 2018