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The euro made its debut as the eurozone’s official currency in the financial market in 1999. Several economists at that time projected the common currency as the world’s new reserve currency, stipulating the financial strength of the western Europe might be formidable enough to rock the US dollar’s standing as the leading reserve currency. Unfortunately, the shared currency has failed to supersede the greenback although it became the second most significant currency.

The European Central Bank has limited the total number of euros in circulation with its hard-money policies. Some European countries including Germany and the United Kingdom have remained reluctant to relinquish financial sovereignty to the central bank and continued to defy the capital standards and financial oversight. If EU member states stop short of accepting the currency, it hinders the world’s reliance on its currency. Not to mention and the insufficient amount of euros being circulated worldwide to make it the world’s primary currency for trading and financial dealings.

The prevailing sovereign debt crisis has something to do with the overall economy. Deflation in some parts of the region and weak economic growth rates weaken the debt-to-GDP ratios of various EU nations. The region’s banking system is still under pressure, with various banks remained undercapitalized.

The euro has trailed a stable increase in value versus the US dollar since its inception, with the pair’s exchange rate escalating under $1.60. However, the financial crisis in 2008 dented the currency’s rise against the greenback. The common currency has dropped all the way back to only above $1.10. Most currency market analysts are projecting the currency’s further plunge to face value with the US dollar.

If the global crisis pulled the currency’s value down, it propped up the US dollar. Financial meltdown, combined with economic instability and uncertainty, does not call for making a radical change in the global reserve currency. The United States had to sell trillions of dollars of US debt in order to counter the global financial free fall.

The European sovereign debt crisis aggravated the euro’s mishaps. Some analysts believe the crisis is continuous, further unmasking the EU’s weakness as an economy and raised hostility between more prosperous and less thriving EU members.

Let’s complicate things some more. The emergence of the Chinese economy in the 21st century has hampered the euro’s quest to become the reserve currency worldwide. China is pushing the yuan to replace the US dollar as the world’s reserve currency. Being sought in global investment, the Chinese currency is used more in international trade. The country is also urging the International Monetary Fund to award it the Special Drawing Rights status given to acknowledged reserve currencies.

The Asian country has instituted numerous yuan-clearing banks around the world, as well as cultivated links between the Hong Kong and Shanghai stock markets for better capital market development in the nation. It has also sealed currency-swapped deal with different central banks, including the Bank of England and the Bank of Canada.

Since China is one of the biggest holders of foreign exchange reserves worldwide, its currency preferences can greatly influence the currencies that can be considered reserve currencies. Needless to say the country will prefer the yuan over the shared currency and the greenback.

Why the euro is not the world’s primary reserve currency? Four reasons: liquidity problems, the European Union’s stability, the above-mentioned financial crises, and China’s rise.