Why do Europeans pay for European products with US Dollar?

Question

In Jean-Claude Juncker's most recent speech on the state of the European Union, there is this perplexing passage:

It is absurd that Europe pays for 80% of its energy import bill – worth 300 billion euro a year – in US dollar when only roughly 2% of our energy imports come from the United States. It is absurd that European companies buy European planes in dollars instead of euro.

I kind of get the part about the energy because we have the Petrodollar system. But I have no clue about internal non-energy commodities being paid for in USD. Could someone please explain the reasons for this situation?

Related but not wholly answered yet: Why are all Iran-German/Iran-European trades made in Dollar instead of Euro?

Answer 1

When two parties in a trade agree on what is traded, apples for oranges, petroleum for USD, petroleum for EUR, petroleum for apples, and so on, there is no reason why the trade cannot proceed in principle.

If the quote is accurate, it likely means that Juncker is not aware of the practical benefit of having value being exchanged in the form of USD. Since EUR is one of the most traded currencies it imposes a "low" cost in many international trades. Since USD is the most traded currency, more even than EUR, it is likely that on average exchanging USD involves lower costs.

If a French refinery imports petroleum from Saudi Arabia the contract can be in EUR or Saudi riyal or any other currency, in principle, if not in practice. If they use EUR the Saudi company will convert some EUR to riyal and pay a spread and they will convert some EUR to USD and pay another spread. This would happen if the Saudi company needed some American oil field services or equipment. The refinery would get EUR from the sale of refinery products within France but perhaps they would get some EUR by selling GBP following the sale of fuel to a British airline. To sell the GBP for EUR they would pay a spread.

If the EUR spreads add up to more than the spreads that would be incurred had they agreed to use USD in payment for the petroleum then it is less costly to agree to use USD.

If the airline flies many non-U.K non-Europe passengers perhaps they have USD earnings on hand in which case a spread can be avoided by agreeing to trade jet fuel with USD instead of GBP as described previously. This agreement is convenient for the refinery had the refinery already decided to pay Saudi Arabia with USD and of course it is convenient for the airline.

Europeans sometimes pay for European products with USD because one or both parties in the trade may already be transacting in USD for some of their revenues or expenditures. In other words, they tend to receive USD for some of their goods and services or they tend to pay USD for some of their goods and services. If they need to hedge operational risk, the available financial contracts may be denominated in USD so those contracts would make for more perfect hedges if the operations being hedged transact in USD.

Answer 2

Because the USD is the standard for all international commerce due to being extremely stable. This has to do with the US dollar being the world's reserve currency. (This is a huge benefit for the United States since it creates dollars out of thin air, and can then trade them for real commodities, reflected in a trade deficit that generates ever increasing wealth...) Because it is the world's reserve currency, every other currency is backed in US dollars. Now, if say, Britain decides to Brexit all of a sudden, or Argentina goes bust, the value of the currency could suddenly become worthless during the transaction. The reason the US is trusted to be the world's reserve currency is because of the political independence of the Federal Reserve (the FED). The FED controls the rate of money creation in the USA, and makes sure to keep inflation at a stable rate (presidents and congress have long had a tradition of not criticizing FED policy, which ensures its independence, and thus this underlies one of the major sources of the USA's wealth and power). In addition, the extreme amount of military spending and military dominance of the USA makes it unlikely that the political system backing the Federal Reserve System of the USA is going to collapse easily.