ECB's Guindos: Euro could be reserve currency if Europe does right

ECB's Guindos: Euro could be reserve currency if Europe does right

European Central Bank (ECB) executive vice president Luis de Guindos has expressed optimism that the euro could become a major reserve currency if Europe successfully addresses certain economic and financial challenges. This assertion comes amidst growing global interest in diversifying away from the U.S. dollar, as seen in recent central bank reserve management trends.

According to a report by the Official Monetary and Financial Institutions Forum (OMFIF), a significant shift in global reserve management is underway. One in three central banks managing a combined $5 trillion plan to increase exposure to gold over the next one to two years [1]. This trend is partly driven by the geopolitical upheaval and the splintering of world trade, which has led to a rethink of financial flows.

The dollar's popularity as a reserve currency has been declining. A net 70% of central banks surveyed by OMFIF said the U.S. political environment was discouraging them from investing in the dollar, up from 30% a year ago [1]. The euro and the Chinese yuan stand to benefit from this diversification. A net 16% of central banks plan to increase euro holdings over the next 12 to 24 months, making it the most in-demand currency [1]. Over the next decade, the yuan is expected to triple its share of global reserves to 6% [1].

De Guindos' optimism is rooted in the potential for the euro to regain a significant share of global reserves. According to sources dealing directly with reserve managers, the euro could recapture the share of currency reserves lost following the 2011 euro debt crisis by the end of this decade [1]. This would mean a recovery to a roughly 25% share of currency reserves, from around 20% currently.

However, for the euro to achieve this, Europe must address several challenges. The European Union is the world's largest trading bloc, but its economy is currently dwarfed by the U.S. Treasury market. To attract more reserves, Europe must boost its pile of bonds and integrate its capital markets [1]. Additionally, the European Central Bank (ECB) must continue to manage monetary policy effectively, with ECB Governing Council member Klaas Knot suggesting that rates may need to be kept steady for some time [2].

De Guindos' vision aligns with the broader trend of central banks diversifying their reserves. The euro's potential as a reserve currency is not just a matter of sentiment but also a reflection of Europe's economic might and the dollar's diminishing safe-haven status. If Europe can successfully address these challenges, the euro could indeed become a major player in global reserve management.

References:
[1] https://cyprus-mail.com/2025/06/29/central-banks-shift-reserves-from-dollar-to-gold-euro-and-yuan
[2] https://www.fxstreet.com/news/ecbs-knot-central-bank-may-well-need-to-keep-rates-on-hold-for-some-time-202506270632