ECB report: dollar losing grip, but euro still not the alternative

According to an ECB report, the dollar’s dominance is slipping, but the euro isn’t the main beneficiary. Instead, smaller currencies and gold are gaining favor.

Since April, erratic U.S. economic policy has driven investors away from dollar assets, resulting in only modest growth for the euro. The yen, Canadian dollar, and gold have been bigger winners.

In 2024, the dollar’s share of global forex reserves fell 2 percentage points, while the euro inched up slightly. Gold holdings surged, with central banks adding over 1,000 tonnes—double the average of the past decade.

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Though the dollar still holds 58% of reserves (down 10 points in a decade), the euro has stalled below 20%. Recent trends suggest some shift toward euro assets, with the dollar weakening despite rising U.S. yields—an unusual sign of fading confidence.

Yet the euro faces hurdles: fragmented debt markets, no unified safe asset, and a lack of strong financial or military backing to rival the dollar’s global role.