02 June 2021

ECB: International use of the euro stable in 2020

This 20th annual review of the international role of the euro published by the European Central Bank presents an overview of developments in the use of the euro by non-euro area residents.

The report covers developments in 2020. This period was characterised by the outbreak of the coronavirus (COVID-19) pandemic, a contraction in global economic activity unprecedented in living memory and exceptional global policy support. On balance, however, these developments did not result in a significant change in the international role of the euro. In particular, the euro’s share in outstanding international loans, in the stock of international debt securities and as an invoicing currency for extra-euro area imports of goods remained broadly stable. The share of the euro in global foreign exchange reserves declined, as did the share of the euro in foreign currency-denominated debt issuance and in outstanding international deposits. The euro remained a key currency in international green bond markets, a small but rapidly growing segment of international debt security markets.

The international role of the euro is primarily supported by a deeper and more complete Economic and Monetary Union, including advancing the capital markets union, in the context of the pursuit of sound economic policies in the euro area. The Eurosystem supports these policies and emphasises the need for further efforts to complete Economic and Monetary Union. The relative resilience of the international role of the euro despite the pandemic shock stands in contrast to the significant decline observed in the wake of the euro area sovereign debt crisis. To some extent, this development may reflect the effectiveness of the unprecedented policy support measures and coordinated approach that have prevailed in the euro area during the COVID-19 crisis. At the same time, the fact that the global appeal of the euro remains broadly stable at a low level suggests that only further resolute policy measures and reform efforts would enable the euro to realise its global potential.

The ECB will continue to monitor developments and publish information on the international role of the euro on a regular basis.

Christine Lagarde
President

1 Main findings

The international role of the euro remained broadly stable in 2020. This period was characterised by the outbreak of the coronavirus (COVID-19) pandemic, a contraction in global economic activity unprecedented in living memory and exceptional global policy support. On balance, however, these developments did not result in a significant change in the international role of the euro.

A composite index of the euro’s international role remained broadly stable over the review period at a low level (Chart 1). Adjusting for exchange rate valuation effects, the index declined slightly by 0.3 percentage points. At current exchange rates, it remained unchanged overall. The share of the euro across various indicators of international currency use was close to historical lows, averaging around 19%. The euro remained unchallenged as the second most important currency in the international monetary system (Chart 2).

The share of the euro in global foreign exchange reserves decreased by 0.7 percentage points over the review period (Table 1). Survey evidence suggests that low or negative interest rates are a concern among official reserve managers globally. The low level of interest rates in the euro area compared with other major economies may therefore have discouraged official reserve investors from increasing the exposure of their bond portfolios to the euro. The share of the US dollar, the leading currency, in global foreign exchange reserves was stable over the review period. It remained close to a two-decade low, in line with previous trends towards gradual diversification of global reserve portfolios. Considering other structural factors, recent ECB staff research suggests that economies with a large share of the euro in official foreign exchange reserves typically have strong trade and financial linkages with the euro area and use the euro as an anchor currency (Box 1)....

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