布鲁盖尔-The-euro-as-an-international-currency_16页_620kb

The Euro as an International Currency: Summary

Core Content

The euro's international role is a topic of increasing interest for the European Union, particularly in response to the US dollar's dominance as a tool of foreign policy. The paper explores the potential benefits and challenges of enhancing the euro's role in the global financial system and outlines the factors that influence the international use of currencies.

Main Viewpoints

1. Welfare Implications of the Wider International Use of the Euro

• Benefits:

  • Reduced dependence on the dollar: A stronger euro could decrease reliance on the US dollar, thereby limiting the US's ability to use the dollar as a political tool.
  • Lower transaction costs: Increased use of the euro in international transactions could reduce costs for domestic users.
  • Financial autonomy: Greater international use would enhance the financial independence of the euro area.
  • Denomination rents: US banks benefit from the dollar's role in international finance, but euro-area banks currently do not derive significant rents from this role.

• Costs and Risks:

  • Currency appreciation: The euro could appreciate in times of global stress, reducing the competitiveness of domestic producers.
  • Exorbitant duty: The euro area would face pressure to provide financial support to the global economy, which could interfere with domestic economic goals.
  • Monetary policy challenges: The international use of the euro could complicate the ECB's monetary policy, as seen in the case of dollar swap lines during the financial crisis.

• ECB's stance: The ECB has maintained a neutral position on the international use of the euro, unlike the Bundesbank, which was historically reluctant due to its monetary aggregate approach.

2. Conceptual Framework and Historical Evidence

• Functions of international currencies:

  • Unit of account: Used for invoicing and pegging.
  • Medium of exchange: Used for payments and interventions.
  • Store of value: Used for investments and reserves.

• Determinants of international currency use:

  • Economic size: Larger economies tend to have more international transactions.
  • Financial market development: Liquidity and depth of financial markets are crucial for the investment/financing and reserve functions.
  • Financial stability: A stable financial system enhances the currency's appeal as a reserve or safe asset.
  • Policy stance: Proactive policies and a central bank willing to act internationally are important for promoting currency internationalisation.
  • Capital mobility: Openness to capital movements supports the international role of a currency.
  • Political and military power: These factors also contribute to the international status of a currency.

• Historical context:

  • The US dollar became the dominant international currency after World War II, supported by its economic size, financial stability, and political power.
  • The euro's international role has grown steadily since its introduction in 1999, but it has not yet surpassed the dollar in all areas.
  • The euro's share in international reserves, trade invoicing, and financial transactions has fluctuated, particularly during the financial crisis.

3. Developments in the Last 20 Years

• Reserve role:

  • The euro has become the second most used international currency in foreign exchange reserves.
  • The share of the euro in reserves has remained relatively stable, while the dollar's share has declined slightly over time.

• Debt securities:

  • The euro holds a second-place position in the issuance of international debt securities.
  • Its share has fluctuated, with a notable decline after 2007, reflecting the financial instability in the euro area.

• Cross-border loans and deposits:

  • The dollar remains the dominant currency in cross-border loans and deposits, though the euro has gained some traction.
  • The euro's share in these areas has increased gradually until 2011, then declined, showing the impact of financial market fragmentation.

• Trade invoicing:

  • The euro is the most used currency for invoicing and settlement in trade between the euro area and the rest of the world.
  • Exporters tend to price in their home currency, and the euro is more commonly used for trade within Europe than outside.

• Foreign exchange markets:

  • The dollar remains the dominant vehicle currency, with a share of around 87% in 2016.
  • The euro's share in foreign exchange turnover has been steadily declining, from 38% in 2001 to 31% in 2016.

Key Information

• The euro has consistently been the second most used international currency since its introduction in 1999.
• The dollar's dominance is due to its economic size, financial stability, and political power.
• The euro's international role is influenced by the stability and liquidity of its financial markets.
• The ECB should adopt a more proactive stance in promoting the euro's international use.
• The European Commission's 2018 proposal marked the beginning of efforts to enhance the euro's global role, but it is not yet a decisive step.
• The euro's role in the global financial system is still limited compared to the dollar, but it has potential for growth, especially with the strengthening of the euro area's institutional framework.