Krogstrup highlights risks from USD dominance in Europe
Danmarks Nationalbank Governor Signe Krogstrup warned that the US dollar's dominance in European financial markets is associated with increasing financial stability risks. She presented these remarks at the CEBRA 2026 Annual Meeting.
USD's firm grip on European markets
Danmarks Nationalbank Governor Signe Krogstrup highlighted that the US dollar's continued dominance in European financial markets is associated with increasing financial stability risks, stemming from large USD portfolios and reliance on USD funding.
Despite Europe's significant economic role, the euro remains a distant second in global market segments like foreign exchange reserves and international debt securities.
This persistent lag is attributed to strong network effects and self-reinforcing dynamics of the US dollar, including its role in trade invoicing, payments, and as a safe haven.
Furthermore, an insufficient supply of highly liquid euro-denominated safe assets, a lack of sufficiently deep and integrated capital markets, and Europe's productivity challenges, leading to lower returns on euro investments, all contribute to the euro's lagging international role.
Glimmers of euro strength emerge
Despite structural impediments like the insufficient supply of highly liquid euro-denominated safe assets, Krogstrup noted recent positive developments for the euro.
International debt issuance in euro increased by 30 percent in 2025, reaching a record high, driven by corporate bonds.
The euro also showed signs of safe-haven behavior during risk-off events in 2025-2026, and its convenience yield rose.
European policy initiatives, including completing the Savings and Investment Union, strengthening the Single Market, and expanding the pool of safe assets, are crucial to reinforce the euro's international role over time.