The international role of the euro: down but not out

Claudio Borio of BIS in this speech:

Much has been said about the role of the euro in the international monetary and financial system and about the currency’s prospects. And much of it is not particularly encouraging.

Some of what has been said is about the future. Based on the lessons of history, there is a broad consensus on the financial and political preconditions for making that future a bright one.2 One can only conclude from those lessons that the distance to travel is, to put it mildly, considerable. I can hardly add
anything of value to that aspect of the debate.

Some of what has been said has been about the evolution to date. Take the IMF’s tally of the share of official foreign exchange reserves denominated in euros. This shows a sizeable diminution, from about 25% in 2012 to some 20% recently.3 Moreover, the ECB’s composite index of the euro’s international
role paints a similarly unflattering picture.4 One might conclude from all this that the euro has lost clout across the board.

Today, I would like briefly to question this verdict. My thesis is that the verdict is too categorical – a more nuanced assessment is in order.

I would like to argue that, in some significant but underappreciated respects, the euro’s heft has actually grown in recent years. I shall highlight three aspects: the euro’s influence on global bond markets; its influence on exchange rates globally; and its influence on the “effective pricing“ of commodities, regardless of the currency in which their prices are actually denominated.

Interesting sets of graphs in the speech..

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