Last year, just under 20% of foreign reserves were held in assets denominated in euros, against more than 60% in dollars
Last year, just under 20% of foreign reserves were held in assets denominated in euros, against more than 60% in dollars

Global Use of Euro Declines Further

The euro is unchallenged as the second most important currency in the international monetary system

Global Use of Euro Declines Further

Use of the euro as an international currency has declined over the past year, primarily due to concerns over political risk and the increased use of emerging market currencies, such as the Chinese renminbi, the European Central Bank said on Wednesday.
The biggest drop was recorded in the use of the euro as a funding currency, mostly due to the high cost of hedging against a fall in its value using swaps, Reuters reported.
"The very simple message is that the euro has continued to lose ground as an international currency," ECB board member Benoit Coeure said on Wednesday. "But the euro is unchallenged as the second most important currency in the international monetary system." However, central banks still increased their reserves in euros, partially reflecting views that the bloc is slowly moving past its protracted debt crisis.

Renminbi's Importance
Reflecting the growing importance of the Chinese currency, the ECB placed around €500 million ($568 million) worth of its foreign currency reserves into renminbi earlier this year and Coeure said this may be followed up by further purchases.
"We believe that the renminbi has a role in a diversified portfolio," Coeure told a news conference, calling the ECB's purchase a first step. "We want our reserves to be liquid and readily available. If that step is successful, we’ll do more, at a later stage," he added.
Almost 20% of foreign reserves were held in euros globally at the end of last year and Coeure said data suggested this may continue to rise.
The US dollar remained by far the world's most important currency, holding just below two thirds of the global market for international debt, international loans and foreign reserves, the ECB's data showed.
"The international role of the euro is primarily determined by market forces and the Eurosystem neither hinders nor promotes the international use of the euro," ECB President Mario Draghi said in the report.
"At the same time, the ECB will continue to monitor developments and publish information on the international role of the euro on a regular basis."

The Second Most Used Currency
The euro remains far from achieving one of the chief aims of its political founders: to challenge the dollar as the sole global currency, Coeure said, adding that the euro was “unchallenged as the second most used currency”. However, the gap between it and the greenback remains yawning.
Reserve managers at central banks are responsible for investing more than $10.8 trillion of their institutions’ money. But last year, just under 20% of that was held in assets denominated in euros, against more than 60% in dollars. The pick-up for the euro last year was just 0.3 percentage points, rising to 19.7% from 2017, he said.
As a share of international loans and trade in foreign exchange markets, the euro’s role in international finance waned, accounting for a smaller proportion of activity in these markets. There is also much less euro-denominated debt than before the financial crisis.

Euro Retreats
The euro erased its early gains against its major rivals in early European deals on Wednesday, even as eurozone business activity expanded more than initially estimated in June, Alliance News reported.
Final data from IHS Markit showed that the composite output index fell to a four-month low of 56.3 in June from 56.8 in May, but above the flash estimate of 55.7. The services purchasing managers' index dropped less-than-estimated to 55.4 in June from 56.3 in May. The flash reading was 54.7.
Germany's composite PMI came in at 56.4 versus 57.4 in May. The score was above the flash 56.1. Data signaled the weakest growth of private sector output since February. Indicating the slowest expansion since January, the final services PMI slid to 54.0 from 55.4 in May. The initial estimate was 53.7.
Meanwhile, the euro was trading higher against its major counterparts in the Asian session. The euro dropped to 1.132 against the greenback, a weekly low. This may be compared to Tuesday's closing value of 1.134. The next possible support for the euro-greenback pair is seen around the 1.12 region.


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