LONDON (Bloomberg) -The European Union moved to challenge the dollar’s dominance in global markets, including energy, as it seeks to strengthen the international role of its currency and become more independent from the U.S. amid a widening rift in transatlantic ties.
The plans, published by the bloc’s executive arm, are aimed at mitigating the so-called "exorbitant privilege” of the U.S. dollar, which allows Washington to force global compliance with its foreign policy goals. The push comes amid growing calls to shift to a multipolar system of global currencies to help improve the resilience of the international financial system.
While strengthening the euro’s global role would make the international economy less vulnerable to shocks stemming from the U.S., privately, EU officials admit that substantially challenging the dollar’s global dominance will likely take time.
According to the commission’s plans, the EU must develop "a full range of trustworthy interest rate benchmarks” in financial markets, and a fully integrated instant payment system, the European Commission said. The bloc’s executive arm will also explore the possibility to further develop the role of the euro in foreign exchange markets.
The proposed measures include using the euro as default currency in energy contracts agreed between EU member states and third countries, as well as the creation of euro-denominated price benchmarks for crude oil. While the proposals aren’t binding legislation, their potential adoption by the bloc could upend the global energy market.
The commission’s recommendations seek to reduce the risk of disruptions to energy supplies due to the actions of third countries.
"A wider use of the euro in the global economy yields important potential for better protecting European citizens and companies against external shocks and making the international finance and monetary system more resilient,” EU Economic Affairs Commissioner Pierre Moscovici said.
The plan also seeks to make hedging transactions in euros more attractive. This could be achieved by requiring a greater number of contracts to be cleared through central counterparties, it said, citing past success with creating liquid markets for such products through measures introduced after the financial crisis.
Finalizing the reform of scandal-ridden financial benchmarks could also help "increase the attractiveness of trading and pricing euro-denominated instruments,” the commission said. On top of that, officials will help foster "a fully integrated instant payment system” to reduce reliance on foreign providers of card and online payments, it said.