The global dominance of the US dollar continued to decline in 2024, according to a new report by the European Central Bank (ECB), but the euro has yet to benefit meaningfully from the shift.

Instead, smaller currencies like the Japanese yen and Canadian dollar, along with gold, were the primary beneficiaries of the retreat in dollar holdings. This trend, while significant, highlights the eurozone’s missed opportunity to strengthen its currency’s role in the global financial system.

Dollar Still Dominates but Losing Ground

The ECB’s annual report showed that the dollar’s share of global foreign exchange reserves fell by 2 percentage points in 2024, bringing it down to 58% — a 10 percentage point drop over the last decade.

While the euro made modest gains, its share remained just below one-fifth of global reserves, reflecting its limited progress as a serious alternative to the dollar.

“The euro has not seen significant inflows despite the dollar’s decline,” the ECB stated.

Gold and Smaller Currencies on the Rise

In contrast, gold saw a sharp increase in central bank demand, with holdings rising by over 1,000 metric tonnes in 2024 — a record pace and more than double the decade average.

According to ECB findings, two-thirds of central banks purchased gold to diversify their reserves, while 40% cited geopolitical risk as the reason.

Gold now makes up 20% of total global foreign reserves, compared to the euro’s 16%, suggesting a shift toward non-currency assets as trust in major economies’ currencies diminishes.

“The momentum behind gold signals a flight to safety,” the report added.

Meanwhile, the Japanese yen and Canadian dollar emerged as strong alternatives, benefitting from both macroeconomic stability and geopolitical neutrality.

An Opening for the Euro?

ECB President Christine Lagarde recently said that the ongoing dollar sell-off, which accelerated after April 2025 due to erratic U.S. economic policies, could finally open the door for the euro to gain more traction.

But she noted that this would only be possible if the eurozone moves ahead with deeper financial integration, such as joint borrowing mechanisms and harmonised capital markets.

“The opportunity is real, but it depends on us completing the union,” Lagarde remarked in a speech earlier this month.

A notable development since April has been the decline in the dollar against the euro — despite rising US Treasury yields, a situation which suggests that investors are beginning to demand higher risk premiums for holding US assets, questioning the dollar’s status as the world’s top reserve currency.

Fragmentation Remains a Challenge

The eurozone’s efforts to present the euro as a reliable reserve currency continue to be hindered by fragmented debt markets.

Because debt issuance is still managed individually by each EU country, there is no truly unified and liquid euro-denominated safe asset, unlike US Treasuries, which remain the global benchmark.

The Case for Joint Debt

ECB Chief Economist Philip Lane revived his long-standing proposal for a synthetic eurozone bond, a portfolio product based on various member states' bonds.

Meanwhile, renowned economists Olivier Blanchard and Angel Ubide have proposed a ‘blue and red bond’ structure where joint European debt (‘blue bonds’) would be backed by dedicated revenue streams, separate from national (‘red’) debt obligations.

“The time is now more favourable than ever,” Lane said. “Especially if blue bond issuance is designed prudently.”

Such moves could enhance investor confidence in euro assets, making them more attractive as reserve holdings.

Capital Market & Defence Gaps

Beyond fiscal fragmentation, the ECB report underlined other structural shortcomings within the eurozone:

• The banking system remains fragmented, lacking cross-border giants

• No capital market union yet exists with harmonised rules and regulations

• The EU lacks cohesive defence capabilities, which undermines geopolitical confidence that global reserve managers look for

These weaknesses further prevent the euro from positioning itself as a true dollar alternative on the global stage.

Conclusion

Despite a continued decline in the dollar’s global reserve share, the euro has failed to significantly benefit, according to the ECB’s comprehensive review.

Gold and smaller currencies like the yen and Canadian dollar have stepped into the vacuum, underlining the eurozone’s unrealised potential.

With growing geopolitical tensions, increased demand for diversification, and questionable US fiscal leadership, Europe has a clear opportunity to assert the euro’s global role.

But without joint debt issuance, capital market unification, and greater policy integration, the euro will continue to fall short of its potential in the global financial architecture.

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