Volatile U.S. politics gives euro's global make use of a boost – ECB

The global utilisation of the euro currency surged from record lows last year, mostly on a flight from the dollar because of the volatility of American politics and concerns about rising U.S. interest rates, the ecu Central Bank said on Thursday.

Demand for the euro, the world’s second most widely used currency after the dollar, fell to historic lows over the past decade. Its rebound suggests both concerns about U.S. politics and growing confidence concerning the future of the euro zone, which survived its biggest test yet during its debt crisis.

The euro’s be part of global foreign exchange reserves, debt issuance and deposits and outstanding loans all increased while its role as an invoicing currency remained broadly stable, the ECB said.

“It’s primarily a diversification from the dollar, which benefits the euro,” ECB board member Benoit Coeure said in the presentation from the report, adding that visible progress in reforms and growing prosperity even on the bloc’s periphery put into interest in the euro.

In global foreign exchange reserves, the euro’s share rose by 1.2 percentage suggests 20.7%. Although this is well behind the dollar’s 61.7%, it is a historic low for that U.S. currency.

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Although the dollar remains by far the most popular currency in the world, its market share continues to be on the steady decline in the last decade as countries diversify into smaller currencies, such as the Japanese yen and China’s renminbi.

“Tentative evidence shows that concerns about unilateral (U.S.) sanctions may have been another factor supporting diversification from the reserve portfolios of some central banks, such as the Central Bank of Russia,” the ECB said, adding that Russian commercial banks also grew fearful that sanctions may limit their ability to conduct dollar transactions.

“China also reduced its holdings of U.S. Treasury securities in the course of 2021 in an environment of escalating global trade tensions, towards the tune of approximately $60 billion (lb47.3 billion),” the ECB said.

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The European Commission has made it an objective to carve out a larger role for that euro, partly to raise the bloc’s global political clout, but the fragmented nature of the common currency area inhibits this process, the ECB said.

The euro zone’s banking and capital market unions remain incomplete and it also requires a safe asset, efforts that have largely been blocked by Germany on concerns that its taxpayers will finish up liable for financial irresponsibility elsewhere.

In foreign currency debt issuance, the euro’s market share increased by 2.5 percentage suggests 22.7% as a stronger dollar, along with higher U.S. rates of interest, raised concerns over higher debt servicing costs, particularly in emerging market economies.

In global loans, the euro’s market share rose 0.8 percentage points to 19.3% while in daily foreign exchange trading, it rose by 0.7 percentage indicate 37.7%, the ECB added.