The European Central Bank said on Monday that the international role of the euro has become differentiated, depending on the particular global market segment being looked at. In its sixth annual review of the international role of the euro, published on Monday, the ECB found that "developments in the international use of the euro have differed across global market segments."
For example, the euro's international role has declined slightly in segments, such as international debt securities, international deposits and loans, foreign exchange and invoicing of goods imports.
At the same time, "in other segments it continued to show a significant degree of stability or a gradual expansion," the report stated. In the period from mid-2005 to the end of 2006, the euro share in the stock of international debt securities declined by around 2.5 percentage points to 31.4 percent in December 2006, the ECB found.
That was mainly due to a large increase in the issuance of long-term bonds and notes denominated in US dollars, the guardian of the euro wrote. In the international loan and international deposit markets, the single currency's shares also declined, falling by 1.5 percentage points and 3.0 percentage points respectively.
And in the foreign exchange markets, the euro's shares in daily settlements of forex trades via Continuous Linked Settlement (CLS) fell to around 39 percent during the period under review, compared with close to 41 percent previously.
"This fall has to be interpreted against the background of an expansion in the number of currencies traded within CLS," the ECB explained. The yen and the pound also saw their market share decline for the same reason.
"By contrast, the US dollar share remained stable at around 93 percent, reflecting the dominant role of the US dollar as a vehicle currency in global foreign exchange markets," the report stated.
Turning to the use of the euro in international trade, the ECB found that the euro's role as a settlement currency for exports of goods from euro area countries "appears to have stabilised, while its share in the invoicing and settlement of imports of goods displayed a notable fall, possibly relating to developments in energy markets."
The euro maintained its role as an exchange rate anchor for countries geographically close to the EU. And the use of the euro in forex reserves held by third countries "has moderately increased, mostly reflecting positive valuation effects for the euro," the ECB found.
Furthermore, the report said that a number of central banks in EU neighbouring countries "continued to intervene in forex markets by using the euro as the intervention currency." Summing up, the ECB found that "in line with the conclusions drawn in previous reports, this review finds the internationalisation of the euro to be characterised by a strong institutional and regional pattern."
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