Review of the international role of the euro

8 July 2009

The European Central Bank (ECB) publishes today its review of the “International role of the euro”, focusing on developments during the year 2008.

Despite the financial turmoil, the global landscape of international currencies and - within that - the share of the euro remained steady. Specifically, between end-2007 and end-2008, the share of euro-denominated instruments increased by around 1 percentage point for outstanding debt securities, around 2 percentage points for outstanding cross-border loans and deposits, and around 1 percentage point for global foreign exchange reserve holdings (all changes measured at constant exchange rates). These changes in currency shares are fully in line with fluctuations observed in previous years.

The fact that the international use of currencies proved resistant in the financial turbulence underscores the conclusion of earlier reviews that the role of currencies is inherently a slowly changing phenomenon. The limited changes in currency shares are especially remarkable as they contrast with sharp declines in overall financial market volumes observed during 2008. Following several years of rapid financial market expansion, spurred by financial innovation and globalisation, the global financial turmoil triggered a halt or even a reversal in growth in some financial market segments, especially following the intensification of the turmoil in mid-September 2008.

The review also shows that the international role of the euro maintains a strong regional pattern. Its international use continues to be most pronounced in countries with close geographical and institutional links with the euro area. In some countries, there is evidence of an increasing role of the euro in currency substitution (use of euro banknotes) and asset substitution (use of the euro in bank deposits and loans) during 2008. These trends are not without risks for the countries concerned. In particular, the global financial crisis has underscored the risks associated with unhedged borrowing by households and corporations in countries, as a currency depreciation may lead to an increase in the borrowing costs of these economic agents.

The review contains a special focus on the determinants of currency choice in international bond issuance and explores the empirical determinants of the currency composition of reserves. A separate box deals with the international role of currencies in asset-backed securities markets.

The ECB’s “Review of the international role of the euro” can be obtained on the ECB’s website (

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