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Euro Global Reserve Status Threatened

Euro Global Reserve Status ThreatenedEuro Global Reserve Status Threatened

Fresh data from the International Monetary Fund (IMF) show central banks worldwide reduced their euro holdings by the most on record last year, anticipating losses caused by massive quantitative easing carried out by the European Central Bank (ECB).

The euro now represents just 22% of global reserves, a significant decline from 28% before the eurozone financial crisis five years ago. Meanwhile, dollar and yen holdings have both expanded, FXStreet reported.

According to the IMF’s data, of the $6.1 trillion of reserves for which central banks specify a currency, the proportion of euros fell in every quarter of 2014.

  Dollar in Focus

This week, the finance ministers and central bank governors of the world descend on Washington for the spring meetings of the World Bank and the International Monetary Fund. As always, it will be a bit of a circus, with lots of “bilateral” meetings aimed at resolving specific countries’ problems — Ukraine and Russia, for example, and of course the eurozone’s problem child, Greece.

There’ll be polite differences of opinion expressed over China’s sponsorship of a new development bank that’s seen as a competitor to the World Bank and over Beijing’s desire to have the yuan treated as a reserve currency by the IMF. Most important, there’s a new global macro context giving greater relevance than normal to these meetings, namely the fact that the dollar has surged over the past year as US monetary policy has diverged from others.

Whatever is said about that is likely to be carefully worded — officials don’t want the market to keep treating the dollar as a one way upward bet, but neither do they want to send a signal that might trigger a stampede out of the greenback.

 

Financialtribune.com