Is the Dollar’s reign at risk?

In a pointed and timely interview on Bloomberg Surveillance, London Business School’s Professor Hélène Rey laid out a compelling case for a stronger European role in the international monetary system.

Responding to co-host Tom Keene’s reference to Charles Kindleberger and calls for Europe to “step up,” Rey argued that global events - including a market shock dubbed “Liberation Day” on April 2nd - have exposed cracks in the US dollar’s dominance.

“The dollar behaved in a totally unusual way,” Rey explained, referring to its depreciation and rising yields during a time of stress, a moment when markets typically flock to the dollar as a safe haven. “That opens the door for other currencies to become more important… to the extent that some of the trust in the dollar system is broken.”

Rey sees the euro as the primary contender. “By all the measures we have - foreign exchange volumes, international payments, debt issuance, reserve composition - the euro comes second. But to move beyond that, Europe has a lot of homework.”

The "homework," she made clear, involves serious structural reform within the eurozone itself. First, Europe must consolidate its common market. Second - and most crucially - it must unify its fragmented bond markets. Unlike the US, which enjoys the advantage of a deep, liquid Treasury market, the euro area still suffers from a split between a centralised monetary authority and decentralised fiscal powers.

Rey praised the European Central Bank for its independence and credibility but noted that without fiscal unity, European bond markets lack the scale and cohesion to rival US Treasuries. “We need something much deeper, much broader - something comparable.”

While Tom Keene alluded to the possibility of simply saying “no” to erratic US policy, Rey deflected. For her, the focus is less on reacting to Washington and more on Europe taking responsibility for its own future.

Rey, who has written widely on the dollar’s hegemony and the risks posed by political unpredictability in the US, struck a tone of both urgency and cautious optimism. In a geopolitical climate of rising uncertainty, her message was clear: the euro’s time may be coming - but only if Europe is willing to act decisively.