On the other hand, the share of the euro in foreign exchange settlements declined. The share of the euro in the outstanding stock of international debt securities, as well as in invoicing of both extra-euro imports and exports, remained broadly stable in the review period. Moreover, the report discusses the implications of the Russian invasion of Ukraine and of the financial sanctions imposed on Russia for the future of international currencies.
The international role of the euro is primarily supported by a deeper and more complete Economic and Monetary Union EMU , including advancing the capital markets union, in the context of the pursuit of sound economic policies in the euro area. The Eurosystem supports these policies and emphasises the need for further efforts to complete EMU.
The ECB will continue to monitor developments and publish information on the international role of the euro on a regular basis. The international role of the euro remained stable in Over this period, the euro area and other major economies recovered from the COVID pandemic recession. The euro area experienced one of the steepest recoveries in its history, bolstered by ample fiscal and monetary policy support, in an environment of rising global inflation driven by higher energy costs, supply bottlenecks and the normalisation of demand as economies reopen.
On balance, these developments did not result in a significant change in the international role of the euro. Adjusting for exchange rate valuation effects, the index remained unchanged. At current exchange rates, it increased marginally by 0. The euro remained the second most important currency in the international monetary system Chart 2.
Notes: Arithmetic average of the shares of the euro at constant current exchange rates in stocks of international bonds, loans by banks outside the euro area to borrowers outside the euro area, deposits with banks outside the euro area from creditors outside the euro area, global foreign exchange settlements, global foreign exchange reserves and global exchange rate regimes.
The estimates for the share of the euro in global exchange rate regimes are based on IMF data for the period post; pre shares were estimated using data from Ilzetzki, E. The latest observations are for the fourth quarter of The euro remained the second most important currency in the international monetary system.
Notes: The latest data for foreign exchange reserves, international debt and international loans are for the fourth quarter of Foreign exchange turnover data as of April The share of the euro in global official holdings of foreign exchange reserves increased by 0. Foreign official investors increased their euro-denominated reserves, although evidence from surveys suggests that low yields continued to be one of the primary concerns affecting their investment strategies in However, additional survey-based evidence suggests that the sentiment of official reserve managers towards the euro might have improved in the course of the past year.
The share of the euro increased markedly in international bond issuance, in outstanding international loans and in outstanding international deposits. The share of the euro in international bond issuance increased by almost 3 percentage points, from The increase in euro-denominated bond issuance was broad-based across borrower residence.
It was driven especially by strong issuance by financial and other services firms. The share of the euro in the outstanding stock of international loans increased by over 2 percentage points to Other indicators of the international role of the euro suggest that the global attractiveness of the euro remained stable overall over the review period.
These indicators include the share of the euro in the outstanding stock of international debt securities, which remained unchanged, while the share of the euro in invoicing of both extra-euro imports and exports changed in absolute terms by half a percentage point or less. The share of the euro in foreign exchange settlements at constant exchange rates declined by 1.
The policy implications stressed by the Eurosystem in the past remain fully valid. The international role of the euro is primarily supported by a deeper and more complete EMU, including advancing the capital markets union, in the context of the pursuit of sound economic policies in the euro area. Box 1 discusses the implications of the Russian invasion of Ukraine and of the financial sanctions imposed on Russia for the prospective global roles of the euro and the US dollar.
First, it has been argued that the sanctions might accelerate the erosion of the US dollar as a global reserve currency, that it could provide a fillip to official reserve managers seeking to bypass the US dollar and the euro in the international monetary and financial system, and that international payment systems could become more segmented. However, the implications of these developments remain uncertain. Recent research suggests that the direction of causality between reserve management decisions and other international currency uses matters.
Shifts in the currency composition of global reserve portfolios per se might not necessarily herald broader changes. Second, the role of the US dollar in all dimensions of international currency use besides foreign reserves has remained stable — or even increased — in the past two decades. Third, alternatives to major international currencies often lack the depth, liquidity or other economic and financial attributes required to appeal to global investors.
In particular, China cannot diversify its very large foreign exchange reserve holdings of more than USD 3 trillion — or about one-quarter of global foreign exchange reserves — in its own domestic currency, which limits the potential upside for a stronger international role for the renminbi. Finally, the Russian invasion of Ukraine might serve as a reminder of the relevance of sound institutions, the ability to maintain price stability over the medium term, and geopolitical considerations as determinants of international currency status.
Box 2 reviews recent developments in the international role of the Chinese renminbi, which remains more limited than the global economic and financial importance of China. However, several recent developments might herald signs of a potential turnaround in the international role of the renminbi. These include progress in developing a digital yuan, which might be used at some point for payments in cross-border trade with China, the inclusion of Chinese bonds in major global bond benchmarks, and the possibility that the Russian invasion of Ukraine could benefit the renminbi as a global reserve and payment currency.
Box 3 provides insights into the international use of the euro as a financing currency across different economic sectors and the trends over time using new international locational banking statistics from the BIS. The box shows that euro-denominated international loans to non-bank financial institutions NBFIs have grown rapidly in recent years, and that the euro is particularly important as a financing currency for this segment of the international loan market.
Given that non-banks are expected to play an increasingly strong role in the global financial system in the future, these developments might contribute to bolstering the global appeal of the euro as a financing currency in the period ahead. Box 4 examines the interplay between the exchange rate elasticities of euro area external trade and the role of the euro as an invoicing currency.
Using panel local projections on monthly bilateral data, the box shows that higher euro invoicing shares are related to a stronger response of export volumes and weaker reactions of external trade prices to exchange rate movements in the short to medium term. Thus, in the presence of strong exchange rate movements, euro invoicing plays a key role in altering the impact of these movements on external trade export volumes and prices.
Finally, Box 5 examines the role of the euro in the global market for stablecoins, which are digital assets designed to minimise price volatility, typically pegged against a single fiat currency or a basket of fiat currencies. ECB staff empirical estimates on the first euro-based stablecoin ever issued Stasis euro suggest that it does not provide holders with a hedge against financial market volatility, given that its value declines in periods of global financial market stress.
Further evidence suggests that transactions in stablecoins are largely driven by transactions in other crypto-assets. This suggests that stablecoins are not viewed as a new safe financial asset class that investors would arbitrage against other asset classes, but as vehicles for transactions in more volatile crypto-assets. Moreover, the Eurosystem is reviewing its oversight framework for payment instruments and schemes with a view to broadening its scope.
In particular, the issuance of stablecoins and provision of crypto-asset services in Europe will be regulated under the Markets in Crypto-Assets MiCA Regulation, which is currently at the negotiation stage. Notes: An increase in the euro nominal effective exchange rate indicates an appreciation of the euro. The Russian invasion of Ukraine and financial sanctions imposed on Russia, such as the decisions to freeze about half of its official foreign reserves and to ban selected Russian banks from SWIFT, [ 4 ] have fuelled speculation about the implications of these developments for the prospective roles of the US dollar and the euro globally.
It has been argued that the recent sanctions might provide a fillip to countries seeking to bypass the US dollar and the euro in the international monetary and financial system. Russia had diversified its official foreign reserve holdings of USD billion away from the US dollar, had attempted to shift the currency denomination of its international payments and reduced domestic dollarisation.
Following the latest sanctions, Russia and other countries may, it is alleged, diversify their portfolios further away from the US dollar and other traditional reserve currencies into other assets, such as the renminbi, gold and crypto-assets. International payment systems could become more segmented.
Russia has demanded that importers of Russian gas should no longer pay in dollars or euro, but in roubles. Since the turn of the millennium, the share of the US dollar in global foreign exchange reserves has declined by more than 10 percentage points, mainly to the benefit other non-traditional reserve currencies, including the Chinese renminbi see Chart A.
However, the implications of these developments on the global appeal of the major international currencies remain unclear. First, the direction of causality between reserve management decisions and other international currency uses matters. Recent research has pointed to the fact that the role of a currency in global trade and finance determines its importance in global foreign exchange reserves.
Therefore, unless more significant changes to international payments or debt issuance patterns occur, shifts in the currency composition of global reserve portfolios might not necessarily herald broader changes in other dimensions of international currency use.
Second, although the share of the US dollar as a global reserve currency has declined, in other dimensions of international currency use, it has remained stable, such as in global foreign exchange turnover and for the invoicing of global trade, or it has increased significantly, such as in international bond issuance.
At more than USD 23 trillion, the US Treasury market remains deeper and more liquid than markets in any other safe assets, including the euro government debt market, which is still fragmented among different issuers. However, despite recent measures to lift restrictions, access to renminbi-denominated bonds and bank deposits for foreign official investors is not fully liberalised. The rebalancing of global official foreign exchange reserves away from the US dollar in the past two decades has mostly benefited currencies more easily traded than the renminbi see Chart A.
About a quarter of the USD 12 trillion in global official foreign exchange reserves are held by China and cannot be diversified into renminbi. Gold may not be a more attractive alternative for official reserve managers seeking to diversify away from the US dollar or the euro, being neither remunerated nor usable for international payments; it is also subject to physical storage costs.
Rebalancing portfolio holdings into crypto-assets is challenging, too. Some of the crypto-assets, such as bitcoin, are supplied in fixed quantities, have highly volatile prices and behave similarly to risky speculative assets. This makes them unappealing to official reserve managers.
Stablecoins might be more attractive in the future. Most stablecoins are pegged to the US dollar, which suggests that complementarities between the various uses of international currencies benefit the incumbent unit — the US dollar. Change in the share of selected currencies in global official holdings of foreign exchange reserves since Notes: The change in the share of the renminbi is estimated using data available since ; the change in the shares of the Australian and Canadian dollars are estimated using data available since The latest observation is for the fourth quarter of Finally, the Russian invasion of Ukraine might serve as a reminder of the relevance of sound institutions, macroeconomic fundamentals, including price stability over the medium term, and geopolitical considerations as determinants of international currency status.
Research suggests that, since the early nineteenth century, the leading international currency or currencies have been those of countries where the rule of law is respected, which emphasise checks and balances, build durable international alliances, and where creditors are well represented.
Overall, time will tell whether more significant changes in the international role of currencies will unfold. What is possible, however, is that the Russian invasion of Ukraine might have acted as a catalyst in related domains. For instance, some countries have accelerated plans to explore central bank digital currencies CBDC in the wake of the invasion, which may have implications for the global appeal of major currencies.
Share of foreign official investors in government debt: high for the US dollar and the euro, low for the Chinese renminbi. The latest observation is for September The share of the euro in global official holdings of foreign exchange reserves increased slightly in The share of the euro in global official holdings of foreign exchange reserves stood at By contrast, the share of the euro declined by 0.
Over the review period, the share of the US dollar declined by about 1. Over the past seven years, the share of the euro in global official holdings of foreign exchange reserves continued to remain broadly stable, hovering around a relatively narrow range. The share of the euro in global foreign exchange reserves increased slightly in Shares of the euro, US dollar and other currencies in global official holdings of foreign exchange reserves. Note: The latest observation is for the fourth quarter of Foreign official investors accumulated euro-denominated reserves despite the low interest rates prevailing in the euro area compared with other major economies.
Purchases of euro-denominated reserves by official investors are estimated to have topped USD billion during the review period compared with almost USD billion for purchases of US dollar assets. Indeed, as in previous years, lower and negative yields in euro area fixed-income markets might have been one of the main factors moderating the global appeal of the euro as a reserve currency.
However, the survey indicates that sentiment among official reserve managers towards the euro might have improved, given that one-third of respondents indicated that they were planning to increase their portfolio allocation towards the euro.
Official reserve managers continu ed to diversify their portfolios in towards non-traditional reserve currencies, particularly the Chinese renminbi. At constant exchange rates, the share of currencies other than the euro and the US dollar increased by 1 percentage point over the review period Chart 3.
The share of official reserve assets denominated in Chinese renminbi increased by 0. Net purchases of renminbi by official investors amounted to an estimated USD 60 billion in the review period see Box 2 for a review of the internationalisation of the Chinese renminbi. The share of the Canadian dollar rose by around 0.
The share of other major reserve currencies remained broadly stable Chart 5. Official reserve managers continued to diversify towards non-traditional reserve currencies. Change in the share of selected currencies in global official holdings of foreign exchange reserves. Notwithstanding earlier predictions that the renminbi would dethrone the US dollar as the leading international currency, the global role of the renminbi remains more limited than the shares of China in global trade and output.
Several recent developments, however, might herald signs of a potential turnaround in the international role of the renminbi. First, China has made rapid progress in the development of a digital yuan which, if allowed to be used across borders, could support the international role of the renminbi. In January China launched a large retail central bank digital currency pilot project to enable domestic residents and foreign visitors to the Winter Olympics in February to use the digital yuan, with some restrictions.
Take-up by foreigners during the Winter Olympics was limited. However, the digital yuan may still be used at some point in the future to settle a share of Chinese imports and exports, for example in the context of the Belt and Road Initiative, thereby supporting the global status of the Chinese renminbi. Another relevant development pointing to an increase in the international appeal of the renminbi was the inclusion of Chinese bonds in major global bond benchmarks.
Finally, according to some observers, the recent Russian invasion of Ukraine and the financial sanctions imposed on Russia could accelerate a rebalancing of global reserve portfolios and payments away from the US dollar and the euro towards the renminbi see Box 1 in this report. Based on the evidence to date, the share of the renminbi as a reserve currency has increased in the recent years, but remains modest compared with other major currencies, at around 2.
Use of the renminbi for international loans, i. However, cross-border lending by Chinese institutions has grown significantly. Based on available data up to , China has become the world's largest official creditor, ahead of the World Bank and the IMF.
The renminbi share is usually higher in Asia and Africa see Chart B and when loans are provided on concessional terms, through a government agency, with a developmental or representational intent. In December the renminbi exceeded the Japanese yen as a global payment currency by value, becoming the fourth most active unit, behind the US dollar, the euro and the pound sterling. Use of the renminbi for invoicing imports and exports has also increased, although it remains at low levels see Chart A b.
Various factors might have hindered further progress in the international use of the renminbi. Note: Exports and imports in renminbi are constructed as the weighted average of global trade invoiced in renminbi. The latest observations are for left panel and right panel. While the euro remains the second most actively traded currency in global foreign exchange markets after the US dollar, [ 30 ] its share in global foreign exchange settlements declined in According to quantity-based evidence on foreign exchange transactions settled in the CLS system, the share of the euro in foreign exchange settlements stood at The share of the euro in global foreign exchange settlements declined in The share of the euro in the stock of international debt securities remained stable in at around By contrast, the share of the US dollar has continued to increase gradually, by 0.
The share of the euro in the stock of international debt securities remained stable in Notes: Narrow measure. Granular data on international issuance of foreign currency-denominated bonds suggest that the volume of international bond issuance rose markedly in , with euro-denominated securities accounting for an increasing share of issuance. This increase occurred amid strong bond issuance globally, driven by the global economic recovery from earlier disruptions caused by the pandemic, and ample fiscal and monetary policy support in major economies.
The share of the euro in international bond issuance increased by almost 3 percentage points to Issuance of US dollar-denominated bonds slowed, increasing by just over 2. The share of the euro in international issuance of foreign currency-denominated bonds increased in Sources: Dealogic and ECB calculations. Note: The latest observation is for end As a result, residents of the United Kingdom are now the largest issuers of euro-denominated international bonds, ahead of US residents see Chart 9 b.
These developments suggest that London currently continues to play an important role as a centre for intermediation of euro-denominated funding despite Brexit. However, emerging market issuance of foreign-currency bonds remained more resilient than domestic currency-denominated issuance due to the loose global financial conditions and robust global risk appetite that prevailed throughout most of the pandemic period.
Emerging market borrowers still the largest issuers of US dollar-denominated international bonds in , while borrowers resident in the United Kingdom became the largest issuers of euro-denominated bonds outside the euro area. A broadly similar, albeit less pronounced, pattern can be observed for US dollar-denominated international bond issuance, with the share of financial and other services firms increasing by approximately 4 percentage points, while the share of public administration borrowers recorded a similar decline see Chart 10 b.
The financial and other services sector accounted for a larger share of issuance of euro-denominated bonds in The growth of global issuance of green bonds accelerated in This expansion was supported by various factors, such as greater investor focus on environmental issues, and an increasing willingness on the part of borrowers to adapt their business practices and funding strategies to environmental considerations. Sustainable finance was also supported by the United Nations Climate Change Conference COP26 and announcements of country goals for energy consumption and transition to a net-zero economy.
The Next Generation EU NGEU stimulus package also helped to sustain the expansion of the green bond market and, indirectly, the role of the euro in this market. While most of the initial investors were domiciled in the EU, more than one-third came from outside the euro area, in particular the United Kingdom see Chart 11 b. Announcements by several central banks of their increasing awareness of climate change implications for the conduct of monetary and financial stability policies have been mentioned as a factor that might affect demand for green bonds.
Global issuance of green bonds increased rapidly in , including public issues such as green NGEU bonds. Notes: The left panel shows annual totals based on aggregation of individual deals; the latest observation is as of end International issuance of green bonds has also increased markedly over the past five years. The share of euro-denominated green bonds declined by about 5 percentage points in , whereas the share of the US dollar increased by 2 percentage points see Chart 12 b.
This development is partly due to the sharp increase in green bond issuance in emerging markets, which have primarily been denominated in US dollars, this being consistent with emerging market bond issuance more generally. Euro-denominated international green bond issuance almost doubled in volume in , even though the share of the euro in total issuance declined.
Notes: Annual totals based on the aggregation of individual deals. The latest observation is for end The share of the euro in the outstanding stock of international loans continued to increase in At constant exchange rates, it rose by over 2 percentage points over the review period see Chart 13 and Table A6. Having declined continuously since , the share of the US dollar in international loan markets stabilised compared with the previous year.
Notes: The latest observation is for the fourth quarter of International loans are defined as loans by banks outside the currency area to borrowers outside the currency area. The stock of euro-denominated loans is now almost twice as large as in The share of the euro in outstanding international deposits increased in There was a notable increase of 1. International deposits are defined as deposits with banks outside the currency area from creditors outside the currency area.
This box provides insight into the international use of the euro as a financing currency across economic sectors and the related trends. The box shows that euro-denominated international loans to non-bank financial institutions NBFIs have expanded in recent years and that the euro is an important financing currency in this segment of the international loan market. Chart A a combines data on euro-denominated international loans with information on the euro legacy currencies. It shows the remarkable growth in amounts outstanding of euro-denominated loans in the past four decades.
This expansion was largely driven by loans to banks until the mids. However, loans to banks declined substantially during the global financial crisis and the European sovereign debt crisis. By contrast, loans to non-banks have remained relatively resilient and continued to rise in recent years.
These developments have led to a marked increase in the share of non-banks, which now account for about one-half of total euro-denominated international loans. Chart A b shows the newly enhanced disaggregated data, which have been available since the fourth quarter of The data provide a breakdown of total euro-denominated international loans to non-banks into four sub-sectors, namely: NBFIs, corporates, government and households. Data on breakdowns by counterparty and country not shown in the chart reveal that this is primarily due to loans to NBFIs located in the United States and the United Kingdom.
Growth in euro-denominated international bank loans driven by loans to non-bank financial institutions. Notes: Pre data based on euro legacy currencies. The number of reporting countries varies across quarters. In the right panel, the gap between the height of the area and the blue line represents the value of non-bank loans that are unallocated by sub-sector.
Chart B a shows a currency breakdown of total international loans across different non-bank sub-sectors. Chart B b shows the persistent growth in the total volume of international loans to NBFIs in all currencies see the light-blue line , while the share of the euro has remained relatively stable see the dark-blue area.
The relatively rapid growth of loans to NBFIs may have therefore supported the international role of the euro through composition effects. The large share of the euro in loans to non-bank financial institutions has supported its role in international loan markets through composition effects. Note: The number of reporting countries varies across the respective quarters. Overall, the importance of euro-denominated loans in total bank claims to NBFIs has implications for policy.
From a global financial stability perspective, exposures of NBFIs located outside the euro area to euro-denominated-loans is a potential channel of spillovers from developments in euro area liquidity to global financial markets and vice versa. Moreover, given that NBFIs are expected to play an increasingly important role in the global financial system, further development of the NBFI sector may support the global appeal of the euro as a financing currency going forward.
The share of the euro as an invoicing or settlement currency for extra-euro area trade declined slightly in The relatively large share of euro invoicing in euro area exports and imports has significant implications for the pass-through of exchange rate changes to trade prices and volumes see Box 4.
The share of the euro as an invoicing currency of extra-euro area transactions declined slightly in Note: The latest observation is for The magnitude and speed of the trade impact of exchange rate changes is of significant importance for economic activity and inflation. In a downtrend resistance will work as a price ceiling which will be the basis for our trading plan. Now that we have identified a trendline, traders should prepare to enter the market in the direction of the trend.
Since our trendline is declining, this means traders should look to sell towards lower lows. From this point finding entries becomes very straight forward. New sell entries can be positioned every time price touches overhead resistance. Below we can see an example of where a trader would have potentially sold the market as price moved to touch our declining trendline.
Once an entry is planned, managing risk with a stop loss should be our next consideration. In the event that price moves above the line, our current analysis would be invalidated and all trades should be exited. One final great point about trading trendlines is that the trading plan for entering into the market is easily repeated!
In a downtrend like the EURJPY above, once a trendline is established, new sell positions can be taken each time price approaches resistance. This opinion would only be invalidated upon price breaking out through our trendline and closing above current resistance.
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