By Eric Albert (Frankfurt, Germany, special correspondent) Published yesterday at 11:36 am (Paris)
LLM summary:
On March 12, 2025, Trump escalated the trade war by imposing tariffs on steel and aluminum, prompting the European Union to respond with its own tariffs. Despite the tensions, a sense of optimism emerged during a conference at Goethe University in Frankfurt, where economists and financial experts speculated that the euro could become a safe haven currency and a reserve currency, traditionally dominated by the US dollar. Klaus Adam, an economist, suggested that Trump's actions might undermine the dollar's "exorbitant privilege," leading to a shift in global currency dynamics.
Financial markets have reacted positively to this speculation, with the euro gaining value against the dollar. Economists are questioning the desirability of holding dollars given the uncertainties surrounding US economic policies and the independence of the Federal Reserve. Concerns have been raised about potential manipulation of the dollar by Trump and the implications for foreign investors. The upcoming appointment of a new Federal Reserve chair by Trump is seen as crucial, as it will determine the central bank's ability to resist political pressures.
While the eurozone faces its own challenges, including sluggish growth and geopolitical threats, there is a growing belief that it could strengthen its position as a reserve currency. Germany's plans for increased spending on infrastructure and defense could provide more secure assets for foreign investors, which is essential for the euro's status as a reserve currency. Although the dollar's dominance is not expected to end soon, there is a possibility that the euro could gain more significance in the global financial landscape, potentially leading to a multi-currency reserve system.