Macron also stated that financial institutions at the European level and all their partners should work very closely in order to build the capacity to be less dependent on the dollar. Sputnik talked about President Macron's intention with Professor Reto Foellmi, head of the economics department at the University of St. Gallen in Switzerland.
Sputnik: Let's begin by asking you what is your personal take regarding Macron's claim that the euro is not a clear alternative to the dollar. Would you agree with this?
Prof. Reto Foellmi: Actually I agree with Macron's claim that when the euro was introduced, there were much higher hopes that the euro would establish itself as a main leading currency compared to the dollar, but until now, the dollar is still the more common reserve currency than the euro.
Sputnik: Of course, there has been a lot of talks recently that, well, too many entities are dependent on the US currency and now we hear this from Macron. Indeed, what kind of risks does this increased dependency on the US currency bear?
Prof. Reto Foellmi: Dependence on the US dollar hasn't increased, it has stayed quite stable. Still, about 20 per cent of reserves are held in euro, but around two-thirds are held in US dollars.
Sputnik: I wanted to ask you about the timing of the statement by Emanuel Macron. Why do you think he brings this up right now?
Prof. Reto Foellmi: The issue was that the euro, of course, is still now in a phase of, say reorganization, after the financial crisis that brought the Eurozone over to a phase of emergency — think of the southern European countries that had a very bad time during the time, because for them the euro was too strong, and for Germany, for instance, the euro is too weak.
So now it's a time when we are talking about increasing risks in the world economy. Of course, now we have the current system with the US dollar as the dominating currency; why couldn't we think of an alternative where the euro also plays a more prominent role?
Sputnik: How could Europe become less dependent on the dollar? What kind of options does it have?
Prof. Reto Foellmi: In my view, first of all, the Eurozone needs to solve its own homework. They've already started doing that, having more control over European banks; but, second, even more importantly, control of fiscal behaviour and as you know, the Italian government's fiscal outlook recently, of course, was not helpful in that regard, in establishing the euro as a credible alternative to the dollar.
Sputnik: Of course, Mr Macron said that financial institutions at the European level should work closely to build a capacity to be less dependent on the dollar. Are you at all optimistic about this happening in the near future?
Recall how the dollar became the reserve currency. It was the successor of the pound sterling and this was the time when the UK, as an economy, of course, fell behind the United States, it was no longer able to afford to finance its whole empire and this, then, was the birth of the dollar. Things like that could also happen to the dollar versus the euro in the future, but I don't see it now.
Sputnik: What about the yuan? Let's talk about the assessments applying to the yuan. Could it become an effective alternative to the dollar?
Prof. Reto Foellmi: The yuan is an interesting question. Certainly, with the rise of China, if you compare to the dollar and the pound sterling before, there is the rise of China. China, of course, could become a central hub for the world economy in the next century.
Sputnik: Am I correct in thinking that, as you have said, it's a lengthy process to build up a reserve currency; maybe, perhaps, it is correct in that they are talking about this now setting the process in motion gradually, so that over time, yes, they might become an effective alternative to the dollar?
Prof. Reto Foellmi: Indeed, I think that the Chinese authorities, of course, have a very long-term horizon. They emphasize other alternatives or other policy proposals. Well, think of the Belt and Road initiative, for instance. Still, I think if there is a successor to the dollar, but I don't see the successor so close now, then I still think it's the euro despite what Macron is saying.
If the Eurozone, again, solves its internal problems, does its homework, the euro, of course, could be at least, maybe not the leading reserve currency, but there could be in some sense two currencies forming the world reserve currencies together — the US dollar and euro.
Views and opinions, expressed in the article are those of Professor Reto Foellmi and do not necessarily reflect those of Sputnik.