Publication - The international role of the euro
Developments in the international role of the euro in 2015 and early 2016
The developments seen over this period took place in an environment of heightened uncertainty around global economic prospects and changing market expectations as to the path of monetary policy across major economies. The main drivers of international use of the euro were the additional unconventional monetary policy measures implemented by the ECB, the slowerthan-expected pace of normalisation of the Federal Reserve’s monetary policy, and concerns about developments in China and EMEs more generally.
In addition to these cyclical factors, there is also evidence that medium-term trends for greater multipolarity in the international monetary system, which have been observed since the start of the global financial crisis, continued over the review period.
Against this backdrop, the euro remained the second most important currency (of those included in the revised SDR basket) in the international monetary system, but with a significant gap to the US dollar (Chart 1).1 A number of the indicators tracked in this report showed the share of the euro to have declined slightly, however, over the review period. This was particularly the case for foreign exchange reserve holdings and issuance of foreign currency-denominated debt and crossborder loans (Table 1).
Use of the euro as an international reserve, investment and payment currency
The slight weakening in the international role of the euro was particularly visible in official holdings of foreign exchange reserves, although the change in its share remained comparable with that of the US dollar. In 2015, the share of the euro in globally disclosed holdings of foreign exchange reserves fell for the sixth consecutive year (Chart 2 and Table A 1). At constant exchange rates, it decreased by 0.6 percentage points, to 19.9%, i.e. the lowest level since 2000. Moreover, the share of the euro in foreign exchange reserves has fallen by almost three percentage points since its peak in 2009, i.e. before the onset of the euro area sovereign debt crisis. The share of the US dollar also declined by a similar degree, however, falling by 0.9 percentage points to 64.1% in 2015 – its lowest share since 1999. The US dollar has lost more than five percentage points of its share since the onset of the global financial crisis in 2007.
The decline in the share of the euro seen in 2015 may be partly due to the fact that China started to report some of its holdings of official foreign exchange reserves to the IMF. China is the largest holder of official foreign exchange reserves and its inclusion in the COFER may have had notable composition effects. The share of the euro decreased by 0.7 percentage points after China’s reserves were included for the first time in the IMF COFER data in the second quarter of 2015.2 The medium-term decline in the shares of both the euro and the US dollar may suggest a trend towards greater multipolarity in the international monetary system. Official holders of foreign exchange reserves have increasingly diversified into non-traditional reserve currencies since the onset of the global financial crisis. Between 2008 and 2015, the share of non-traditional reserve currencies, including the Australian and Canadian dollar, increased by more than 4 percentage points to 6.8%.
The currency composition of global payments provides further evidence of a move towards greater multipolarity in the international monetary system. Data collected by SWIFT, a provider of secure financial messaging services, show that the US dollar remained the most commonly used currency of payment in 2015, accounting for 43% of global international payments (Chart 3). The share of the euro, meanwhile, stabilised at close to 30%, after three consecutive years of decline, and that of the renminbi continued to grow, to over 2%, thus almost equalling the level of the yen. This is consistent with the increasing role of the Chinese currency in Asia and internationally.
Foreign demand for euro area financial securities declined in 2015, largely reflecting an environment of low – and, in some cases, negative – euro area bond yields. There were notable portfolio inflows into the euro area in the first quarter of 2015 in the wake of the announcement of the ECB’s asset purchase programme. Foreign investors’ appetite for euro area financial securities subsided in the second half of 2015, however (Chart 4). Balance-of-payments data suggest that foreign investors rebalanced their portfolios away from euro area debt securities, most likely reflecting the marked decline in euro area yields following the launch of the ECB’s asset purchase programme and as a result of its expected expansion.
page source http://www.ecb.europa.eu/
