Another influential left-wing news organization opined this week that the United States dollar is losing its global reserve currency status. The piece argued that the European Monetary Union will supplant the dollar as the global reserve currency.
This is cringeworthy stuff.
Far more noteworthy is the seemingly terminal decline of Western European economies and the fundamental weaknesses in China’s economy. China, after all, is also often mentioned as another candidate for reserve currency status. But let’s be clear, the U.S. dollar will remain the global reserve currency for the long term. Despite the federal deficit and other economic problems, the U.S. economy continues to be strong. The economic outlook is increasingly positive, particularly because the U.S. is the global leader in Artificial Intelligence. China ranks a distant second here. The U.S. is also energy self-sufficient thanks to the shale oil revolution. And the U.S. remains a leader in the export of high-value-added goods and services.
Yes, the U.S. has economic flaws, but its weaknesses are not terminal. But the European countries face deep structural problems, which will only become worse. European economic weakness is especially pronounced in the area of high technology, particularly in AI. An economic bloc like the EMU cannot seriously be considered for the status of the world’s reserve currency when it is becoming irrelevant in the global economy’s most important sector, high technology.
A major advantage of the U.S. is size and scale. The U.S. economy is about six times larger than the economy of Germany, the largest economy of the EMU. The capital investment required to compete in AI and other technologies is large and increasing. U.S. capital investment in AI is many times higher than any other country or countries of the EMU. The largest American technology companies will invest over $300 billion in AI this year and probably more next year. This amount dwarfs what France, for example, is committing to AI. Its AI champion is Mistral, a company with a valuation of less than $10 billion.
The AI champions of the U.S. are valued in the trillions. To illustrate the size and competitive advantage that the U.S possesses in AI technology, Elon Musk’s xAI raised $6 billion in December 2024 in U.S. capital markets. Now Musk is returning to the market for another $12 billion. He will get the money. A major reason for the dollar’s reserve currency status is the size of domestic capital markets. International investors want and frankly must have exposure to both U.S. technology and the very vibrant venture capital markets of the U.S.
Despite all the noise about America’s brain drain because of Trump, the best and brightest technological minds continue to flock to the U.S. They are not going to Europe, where taxes are high and regulations suffocate innovation.
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Yes, at the moment, the Euro is relatively strong against the dollar, but the leaders of Europe are already whining about the negative effects of the too-strong Euro. The euro is trading at about $1.18 to the dollar. It takes $1.18 to purchase 1 euro. Just 20 years ago, the euro was as high as $1.60 against the dollar. Rather than bragging about the strength of the euro, the leaders of the EMU should worry about why Europe is running a distant third in the global economic race.
The economic future looks bleak for European countries. Talk about the euro supplanting the dollar is plain nonsense. No one bets on a loser.
James Rogan is a former U.S. foreign service officer who has worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society. He can be followed on X and reached at [email protected].
