Euro’s global role could grow as Europe sta­bi­lizes

Kuwait Times - - BUSINESS -

FRANK­FURT AM MAIN: The euro gained ground as a re­serve cur­rency in 2016 af­ter years of de­cline, the Euro­pean Cen­tral Bank said yes­ter­day, sug­gest­ing that re­ced­ing po­lit­i­cal un­cer­tainty in the eu­ro­zone could boost the trend. The euro’s share of for­eign cur­rency re­serves world­wide inched up 0.3 point to 19.7 per­cent in the fourth quar­ter, ac­cord­ing to an an­nual ECB re­port. “In­sta­bil­ity seems to be re­ced­ing in the eyes of mar­ket par­tic­i­pants,” ECB board mem­ber Benoit Coeure told jour­nal­ists in Frank­furt. “That might bode well look­ing for­ward for the role of the euro as a re­serve cur­rency.”

By com­par­i­son, the US dol­lar ac­counted for some 64 per­cent of for­eign cur­rency re­serves world­wide, a drop of more than 6.0 per­cent­age points from the 2007 level, while China’s ren­minbi stood at 1.1 per­cent. A 2017 sur­vey of for­eign re­serves man­agers high­lighted by the cen­tral bank found that one in three were con­cerned about po­lit­i­cal in­sta­bil­ity in Europe. But the fail­ure of an­tiEuro­pean Union and anti-euro par­ties to take power in French and Dutch elections this year could see those fears dwin­dle, Coeure sug­gested.

“Given what we hear from in­vestors, they per­ceive po­lit­i­cal un­cer­tainty in the eu­ro­zone to be less,” he said, sug­gest­ing that “we could see a re­bound in the role of the euro” in fu­ture. The euro re­mained the sec­ond most-used cur­rency world­wide on a range of mea­sures, with its share of in­ter­na­tional pay­ments for goods and ser­vices grow­ing al­most 2.0 points to 31.3 per­cent.

Some 42 per­cent of in­ter­na­tional pay­ments were in dol­lars and 1.7 per­cent used ren­minbi. Most other mea­sures saw the euro used less, no­tably on in­ter­na­tional debt mar­kets, where the share of both out­stand­ing and newly-is­sued debt de­nom­i­nated in eu­ros fell. Its share of new for­eign-cur­ren­cy­de­nom­i­nated debt dropped 4.4 points to 20.4 per­cent by the end of 2016. The ECB in­sists that it does not aim to in­crease in­ter­na­tional use of the euro, as its man­date em­pow­ers it only to work for price sta­bil­i­tyor a steady rate of in­fla­tion just be­low 2.0 per­cent. Nev­er­the­less, Coeure ac­knowl­edged that “the sin­gle cur­rency is an in­stru­ment for Europe to play a role on the global stage... it’s only nor­mal that Euro­pean lead­ers would see it that way.”—AFP

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