ECB Says Euro’s Global Role Slipped in Multipolar Currency World

  • Euro’s share of international reserves lowest since 2000
  • Traditional reserve currencies complemented more by yuan

The global use of the euro declined slightly in 2015 and early 2016 as China’s yuan started to take a larger role in reserves and trade in an international monetary system that is becoming more multipolar.

“The euro remained the second-most important currency in the international monetary system, but with a significant gap to the U.S. dollar,” European Central Bank President Mario Draghi wrote in the foreword of a report on the international role of the single currency published on Wednesday. “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.”

The ECB’s unconventional stimulus measures, slower-than-expected policy tightening in the U.S. and a slowdown in emerging markets were the main drivers of the euro’s international usage, according to the report. The single currency accounted for 19.9 percent of international reserves, down 0.6 percentage point. The dollar accounted for 64.1 percent.

The euro was also used in 29.4 percent of global payments, compared with the dollar’s 43 percent. Issuance of euro-denominated debt and cross-border loans declined.

While the share of the euro in foreign-exchange reserves was the lowest level since 2000, the drop in recent years is comparable with the dollar, the report showed. It is partly a consequence of China starting to report some of its reserves to the International Monetary Fund, according to the ECB.

“The medium-term decline in the shares of both the euro and the U.S. dollar may suggest a trend toward greater multipolarity in the international monetary system,” the ECB said in the publication. “Official holders of foreign-exchange reserves have increasingly diversified into non-traditional reserve currencies since the onset of the global financial crisis.”