The Euro vs Dollar Debate: A Review

This Working Paper provides a comprehensive and multidisciplinary literature review on the euro vs dollar debate. In the first part it presents the euro-optimist and the euro-sceptical hypotheses on the euro’s challenge to the dollar within Economic literature and how current data show how the euro has underperformed vis-à-vis euro-optimistic expectations. In the second part, drawing on the International Economics and International Political Economy (IPE) literature, the paper explains the euro’s political flaws. It shows that a currency can only become the top international currency if there is an active political commitment by the issuing authorities to make it the leading currency. The paper shows how existing IPE literature offers a very accurate picture of the structural conditions of the international monetary system. Where it lacks nuance is in identifying the social impact of the euro. The last part of the paper focuses on these social dimensions. Following a constructivist approach, it shows how the euro has become a truly global currency in the social sense and how key financial agents are gradually seeing an evolution from a unipolar system dominated by the dollar to a bipolar system where a mildly descending senior pole (the dollar) and a mildly ascending junior pole (the euro) compete against each other.