On January 19, the European Commission unveiled a preliminary plan to reduce the European Union’s dependence on the US dollar, with the aim of protecting European companies from sanctions imposed by Washington outside their borders, and the long-term strategy aims to strengthen the euro’s position as an international currency and compete with the dollar.

In a report published by the American website Modern Diplomacy, writer Andrei Kadomtsev says that European officials and economic experts saw that the sanctions and customs duties imposed by the Trump administration on a number of countries during the past two years revealed the extent to which Europe was linked to the financial system. American and dollar.

The US currency represents more than 80% of financial transactions around the world, so it is easy for Washington to impose financial sanctions on any country, and all it has to do is include individuals, companies, or countries within the "black list", which is the list that is directly approved in various Banks around the world.

Fearing that they will be prevented from using the dollar, companies and financial institutions must submit to measures imposed by Washington.

On December 3, the General Directorate for Foreign Policy of the European Parliament published a report on the actions of the US International Trade Commission, stating that “US foreign sanctions against Russia, Iran and Cuba affect the interests of the European Union countries and are legally unfounded.”

The report notes that these measures are inconsistent with the conditions of the World Trade Organization, and described the US "secondary sanctions" that prevent access to the dollar-based financial system, as a "serious challenge to the 27 member states of the European Union."

In order to protect the European Union economies, the report calls for an increase in the share of payments in euros or an end to cooperation with the United States in some areas.

The European Commission expects that a plan adopted last summer to save the European Union economies from the consequences of the Coronavirus pandemic, and complementary financial reform programs within the next seven-year budget, will help strengthen the role of the euro at the international level.

The main obstacle facing Europeans to impose their currency globally and the crowding out of the dollar is the geopolitical factor (Getty Images)

The euro is challenging

The writer says that the history of the world's dominant currencies goes back to several centuries, but none of them reached the level of control and influence that the US dollar enjoys at present.

Experts agree that the state, or group of countries that want its currency to be dominant in the world, must have a strong, developed and sustainable economy, a wide financial market, and ensure the free movement of capital, and it must play a leading role in international relations and have military and geopolitical influence. Large.

According to the author, Europe is progressing at a steady pace, especially with regard to nominal economic growth, especially in light of the low cost of financial transactions and the transparency of the circulation of information, but the most optimistic about the future of the euro believe that it is still far from competing with the two main financial centers in the world: London and New York.

According to the European Commission, dependence on the euro in 2019 reached a fifth of the world's currency reserves, and 60 countries and territories have pegged their currencies to the single European currency.

According to the Financial Times, the euro has also performed well in the promising market for "green" bonds, roughly half of which are denominated in euros.

In November of last year, the "SWIFT" interbank dealings system reported that "for the first time since 2013 the dollar was no longer the currency most used in global payments" and indicated that the dollar accounted for 37.6% of transactions in October, compared to 37.8. % For EUR.

Bloomberg confirmed that the decline in the dollar price and the decrease in US currency payments were the result of the crisis in global trade, the economic recession caused by the outbreak of the Corona virus, and the state of political instability.

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A geopolitical obstacle

The writer believes that the main obstacle facing Europeans in order to impose their currency globally and the crowding out of the dollar is the geopolitical factor. Despite all statements about the feasibility of integration between the countries of the Union, this matter is still far from being achieved on the ground, and the European Union is still unable to exert its influence on The major economic powers, led by the United States and China.

Based on the recently published document, the European Commission looks forward to maintaining the pace of economic and financial integration achieved by the European Union in the context of joint efforts to address the Corona crisis.

This coincides with a major escalation between the United States and China financially, commercially and technology, which may give the euro and the European financial system as a whole the opportunity to provide an alternative and safe haven for countries and companies seeking to escape from the clutches of the US-Chinese conflict.

Digital Euro

But the writer believes that the European Union currency cannot compete with the dollar and the yuan, without Europeans achieving the required development in the field of financial technology, as one of the main features of economic influence in our world today.

According to him, Europe suffers from terrible lag compared to the United States and China in the field of digital financial services and online trade, and bridging this technological gap requires great efforts, and what makes the situation worse is the absence of a common European market for digital financial technologies and services.

At the present time, the European Central Bank is working on issuing the digital euro to reduce dependence on the dollar, and such a move may have major geopolitical consequences - according to the author - similar to what happened when Bitcoin appeared, when Washington sensed the danger and harnessed its capabilities to confront this new currency.

The writer asserts that if states and governments start issuing cryptocurrencies, unilateral US sanctions will become useless, and the withdrawal of any country from multilateral agreements will not make any sense either.

Therefore, the digital euro may undermine the dominance of the dollar, US sanctions and pressure policy, and provide alternatives to international interbank transactions away from the dollar.