A sobering ECB report on the role of the EUR – Commerzbank

Some ECB officials, including the President herself, have recently made no secret of their ambitions to establish the euro as the world's new reserve currency, Commerzbank's Head of FX and Commodity Research Thu Lan Nguyen notes.

US sanctions policy may jeopardize the USD's haven status

"However, the report the central bank recently published on the international role of the euro is likely to bring disillusionment. Here it points to an interesting development: The share of gold in the reserves of central banks overtook the share of the euro last year. Admittedly, this is due to a great part to the significant rise in the price of the precious metal. Nevertheless, it is clearly observable that many central banks made significant gold purchases last year."

"The ECB provides explanations for this: The purchases can be observed especially since the outbreak of the Ukraine war and are therefore likely to be a reaction to the Western sanctions against Russia which included the freezing of foreign currency reserves of the Russian central bank in many countries. Central banks in countries with close relations to Russia and China in particular seem to have built up their gold reserves to protect themselves from similar sanctions."

"One thing that could seriously jeopardize the dollar's position as the world's reserve currency is the US sanctions policy. If these increasingly represent a potential burden for companies, they could decide to turn away from the US dollar. However, this naturally also applies to the euro. If Europe's sanctions policy goes hand in hand with that of the US, the euro is of course not a viable alternative to the dollar. In the case of the Russia-Ukraine war, the explanation is clear: the majority of Russia's frozen foreign currency reserves are located in Europe after all."