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The euro has the potential to become a viable alternative to the U.S. dollar, a shift that would bring immense benefits to the 20-nation bloc, said European Central Bank President Christine Lagarde on Monday.

However, this transformation would require governments to strengthen the EU’s financial and security architecture, she added.

Experts note that, concerned about erratic U.S. economic policies, global investors have been gradually reducing their exposure to dollar-denominated assets in recent months. Yet, instead of turning to another currency, many have opted for gold, citing the lack of a clear alternative.

Indeed, the euro’s global role has remained stagnant for decades. EU financial institutions are still incomplete, and member states have shown little appetite for deeper integration, experts explained.

“Ongoing changes are opening the door to a ‘global moment for the euro,’” Lagarde said during a conference in Berlin. “But the euro won’t gain influence by default—it must earn it.”

To achieve this, “Europe needs deeper and more liquid capital markets, stronger legal foundations, and a firm commitment to open trade backed by credible security capabilities,” Lagarde argued.

Lagarde’s View on the Dollar’s Position

The dollar’s dominance has been in gradual decline for years and now accounts for 58% of global foreign exchange reserves—the lowest in decades, though still well above the euro’s 20%.

According to Lagarde, any elevation of the euro’s global role must be accompanied by stronger military capabilities that can support alliances.

“This is because investors—especially official investors—also seek geopolitical assurances,” Lagarde explained during a speech at the Hertie School in Berlin. “They invest in the assets of regions that are reliable security partners and can uphold alliances with hard power.”

She added that Europe should also aim to make the euro the preferred currency for invoicing international trade. This could be achieved by forging new trade agreements, improving cross-border payment systems, and establishing liquidity arrangements through the ECB.