According to a report from the European Central Bank, the euro’s global role remained largely unchanged last year, a disappointment to those who expected the unstable U.S. economic policies to give it a significant boost. Instead, investors favored gold and smaller currencies, according to the ECB report.
According to ECB President Christine Lagarde, the euro has the potential to become an alternative to the dollar and unpredictable U.S. policies have created a “global euro moment.” However, for this to happen, European policymakers must make the necessary reforms.
The euro currently holds about 20% of the global market by various measures, up slightly from a year ago but well below the levels of two decades ago. Gold and less traditional reserve currencies have strengthened their positions at the expense of the euro and the dollar.
Lagarde said the euro could increase its attractiveness on a global level if European politicians create the necessary conditions and move from words to action. For this purpose, in her opinion, it is necessary to strengthen economic stability, legal and institutional integrity, as well as to increase geopolitical authority.
Lagarde emphasized: “Complacency is unacceptable. The forces of fragmentation are becoming more and more visible.
The role of the Euro is growing slowly
Over the past decade, the global role of the euro has been growing gradually. The growth has been particularly marked in the issuance of international debt denominated in euros. Last year, they exceeded $1.1 trillion, a record high since the currency’s creation. This was facilitated by low costs and margins.
Issuance of so-called reverse Yankee bonds – debt issued by U.S. companies in euros and then converted into dollars – increased. This rose by almost 50%, supporting the euro’s rise.
However, the euro’s share of foreign exchange reserves fell 0.5 percentage points to 20.2%, well below the dollar’s 57% share. This indicates that reserve managers are avoiding drastic changes in their investment strategies, even in the face of heightened geopolitical instability.
Investments have also been shifting towards gold, with central banks and private investors purchasing significant amounts of the metal. Last year, private investment in gold doubled to 2,200 tons, while central banks bought 850 tons, down from the previous year but still well above the level before Russia’s SWO in Ukraine.
Given that gold is also part of official reserves, its share exceeded that of the euro and US Treasuries. However, much of this growth is due to higher gold prices rather than new purchases.
The share of the euro increased in the markets in many key segments, although without significant changes.
The euro’s decline was particularly marked in daily foreign exchange trading. However, this was mainly due to an increase in dollar hedging, driven by high volatility in the US currency due to a number of policy announcements, especially on tariffs.
Other currencies also benefited, notably the Chinese yuan, whose share stands at 9%, according to ECB data.
