Overview
Europe should be prepared to assume a bigger role in global finance as the dollar eases and interest in the euro grows, European Central Bank policymaker Martin Kocher said. The ECB last week announced measures to expand access to its euro liquidity backstop in a bid to enhance the currency's international appeal, and indicated it will provide EU leaders with a list of reform tasks aimed at making long-pursued improvements to financial frameworks more urgent.
Euro's emerging safe-haven status
"We have been seeing a stronger role for the euro over some time," Kocher said in an interview. "We are seeing more interest in the euro by counterparts and I think that’s one of the reasons why we’re seeing some appreciation of the euro, why the euro is becoming more of a safe haven currency."
The euro has strengthened roughly 14% against the dollar over the past year, a gain that Kocher attributed in part to declining trust in the United States amid unpredictable trade policies and in part to growing European confidence tied to increased defence and infrastructure spending.
Shifts in reserve composition and an expanding role
Although more than half of global foreign exchange reserves remain denominated in dollars, that share has been gradually decreasing for about a decade, and Kocher said further declines are expected. The euro currently holds close to a 20% share of those reserves. He warned that such a realignment could thrust the euro into a larger position on the global stage and that Europe should be ready if that happens.
"It’s not an objective to play a larger role as the euro internationally, but we might be forced to do so," Kocher said. "It’s important to be well prepared."
Tools and preparedness
Kocher said the ECB is exploring tools that could be deployed to stabilise the international financial system, including international repos and swap arrangements, among other instruments. He framed this work as preparatory and as consistent with the central bank’s mandate to support financial stability.
ECB President Christine Lagarde is expected to disclose more details about the ECB’s revised euro backstop facility - commonly referred to as repo lines - later this week.
U.S. stance and currency dynamics
On the topic of U.S. policy, Kocher noted that communication from the U.S. administration does not suggest an effort to reverse the dollar’s recent depreciation. "There have been statements by the U.S. administration that they are not very concerned about depreciation of the dollar," he said. "If the U.S. is not concerned, it means they will not take any countermeasures for what has happened."
Monetary policy and outlook
Kocher expressed comfort with the ECB’s current policy stance, saying it remains appropriate and that a material environmental change would be required to trigger a reassessment. The ECB left interest rates unchanged last week, maintaining a steady policy stance that has been in place since June. The board’s communications were sufficiently balanced that market participants currently do not expect any rate changes this year.
"I think the risks are balanced now," Kocher said, referring both to the inflation and economic outlooks. He noted that while the euro’s appreciation can exert downward pressure on inflation, that move occurred in the first half of 2025 and has been fully incorporated into the ECB’s projections; the outlook has been broadly stable since the bank’s September projections.
Kocher added that he would only become concerned about the exchange rate if inflation were to move so far from the target that it altered long-term inflation expectations. "I think we would need a change in the environment to actually change the policy stance," he said. "At the moment, the policy stance is compatible and in line with our objective."
Key points
- The euro has strengthened about 14% versus the dollar over the past year and is increasingly viewed as a safe-haven currency - impacting foreign exchange markets and reserve managers.
- The ECB is expanding access to its euro liquidity backstop and will present EU leaders with a reform checklist to bolster the euro’s global role, affecting banking and sovereign liquidity operations.
- Policymakers are considering instruments such as international repos and swaps as preparatory measures to stabilise international financial markets should the euro take on a larger share of global reserves.
Risks and uncertainties
- U.S. policy signals indicate limited concern about dollar depreciation, implying no countermeasures may be forthcoming - a factor that could accelerate reserve shifts and affect FX and sovereign debt markets.
- Should the exchange rate materially alter inflation dynamics and long-term expectations, the ECB could face pressure to change its policy stance, creating uncertainty for interest-rate-sensitive sectors and markets.
- The speed and scale of a potential global reallocation of reserves are uncertain, leaving banks and liquidity providers to navigate evolving demand for euro-denominated instruments.
Conclusion
Kocher’s comments underscore a view within the ECB that the euro’s rising attractiveness requires practical preparation rather than declaratory ambition. With the ECB moving to widen its liquidity backstop and exploring financial-stability tools such as repos and swaps, Europe is taking operational steps to ensure it can support a more prominent international role for the euro if global currency allocations continue to shift.