Source: Boz, E., Casas, C., Georgiadis, G., Gopinath, G., Le Mezo, H., Mehl, A. and Nguyen, T., Patterns in invoicing currency in global trade, Working Paper Series, No 2456, ECB, Frankfurt am Main, 2020. For a discussion of frictions to cross-border payments, see, for example. In that year, Denmark was in ERM II, Bulgaria and Bosnia and Herzegovina had a euro-based currency board, Croatia a tightly managed floating regime, and North Macedonia a stabilised arrangement with the euro as a reference. At the same time, commodity exporters such as Norway, Azerbaijan and Ghana may prefer to hold a higher share of their reserves in US dollars to match export revenues in this currency. (2020) combine the new dataset on invoicing currency patterns with expanded and updated datasets for bilateral trade price and volume indices to obtain estimates of exchange rate pass-through in the spirit of earlier literature, such as Gopinath et al. These developments reflect a marked increase in the volume of US dollar-denominated deposits at the peak of the pandemic, rather than a decline in euro-denominated deposits and in the attractiveness of the euro as an international store of value. Non-bank financial intermediaries (NBFI) play an increasingly important role as a source of finance globally. Still, it is interesting that the euro is used as a vehicle currency in certain regions. The small decline in the issuance of euro-denominated debt securities was primarily due to a reduction in issuance by US borrowers, which was volatile over the review period. The euro remained the second most important currency in the international monetary system, Snapshot of the international monetary system. International deposits are defined as deposits with banks outside the currency area from creditors outside the currency area. It might facilitate digital dollarisation in such countries, leading to the full or partial replacement of their currencies with the CBDC for local payments, as a savings vehicle and, ultimately, as the unit of account. Interest rates in the euro area remained in negative territory in 2020, 5-year and 1-month interest rate in major economies in 2020. The EU funds the following activities under its Common Foreign and Security Policy budget: The role of the Service for Foreign Policy Instruments. In particular, the composite index of the euros international role declined in 2011 by 0.9 percentage points at constant exchange rates, compared with 0.5 percentage points at current exchange rates. On balance, however, these developments did not result in a significant change in the international role of the euro. [7] At the same time, official investors have also taken part in these developments intervening in the foreign exchange markets to counter capital outflows. The laws it proposes must defend the interests of the Union and its citizens as a whole. However, restricting the access of non-residents to the CBDC would reduce its convenience for cross-border payments, if it were not interoperable with foreign payment systems. Designing development policy, delivering aid, EU delegations, and diplomatic missions to the EU. Sources: Lipper for Investment Management and ECB calculations. The 2021 Strategic Foresight Report, The EU's capacity and freedom to act', presents a forward-looking and multidisciplinary perspective on important trends that will affect the EU towards 2050, including: climate change and other challenges, technological transformations, pressure on democracy and values, as well as shifts in the global order a. [1] The relative resilience of the global appeal of the euro described in this report is noteworthy given the scale of the pandemic shock. Russia had been among the main sellers of US Treasury securities between March and December 2018 to rebalance the currency composition of its official reserves, which explains the sizeable increase in their holdings of euro that year. By the end of 2020 official investors had increased their holdings of US Treasury securities by more than USD 100 billion. [80] It was followed by two further issuances in November 2020 and one issuance in January 2021, which combined together amounted to 36.5 billion. The EU can only act in those areas where its member countries have authorised it to do so, via the EU treaties. Moreover, the funds hold assets mainly denominated in US dollars, which account for around 70% of their portfolio allocation, a share much larger than that of debt securities issued by entities resident in the United States in their portfolios. By contrast, the extent to which individuals are economically affected by the pandemic appears to have no significant impact on trust in the stability of the euro. Among other things, the President represents the EU to theoutside world. Rather than using the conventional assumption applied since the seminal work of Mundell (1963)[115], it is instead assumed that export prices are set in a so-called vehicle currency, i.e. Moreover, the specific design features of a CBDC would be important for its global outreach and, ultimately, the international role of the currency in which it is denominated. This decline, and the contrast with the increase in US dollar-denominated bond issuance, is consistent with IMF analysis suggesting that favourable US domestic financing conditions in the aftermath of the first wave of the COVID-19 pandemic rested more on the buoyancy of bond markets, as lending standards for banks loans actually tightened somewhat (see IMF, , See Aldasoro, I., Ehlers, T., Egemen, E. and Huang, W., , This is consistent with research suggesting that international monetary policy transmission may be amplified by internal capital markets. It relies on a cross-border corridor network, where transfers of funds can occur instantaneously on a peer-to-peer basis. In the years following the global financial crisis a combination of factors, such as deleveraging by euro area banks and regulatory efforts to reduce exposures to foreign loans, led to a decline in the volume of international loans denominated in euro (Chart16). [63] Notably, the share of the euro in global safe assets has halved since the global financial crisis, as the debt of a number of euro area economies was downgraded (Chart 22, right panel). Their share therefore declined by about 5 percentage points over the review period, to stand at about 11%. Liquidity arrangements among central banks are well-established instruments in central banks toolkits. The international role of the euro remained broadly stable in 2020. These two countries combined account for more than half of reserve holdings denominated in euro in the new dataset and more than one-fifth of total reserves in euro (upper panel of Chart A). This site is managed by the Directorate-General for Communication, What the European Commission does in strategy and policy, Aid, Development cooperation, Fundamental rights, Follow the European Commission on social media, proposing laws to theEuropean ParliamentandCouncil of the European Union, helping EU countries implement EU legislation, managing the EU's budget and allocating funding, ensuring that EU law is complied with together with the Court of Justice, representing the EU outside Europetogether with the EU's diplomatic service, theEuropean External Action Service. [55] The purpose of this special feature is to review these policy initiatives and analyse their implications for the international role of the euro. Only the heads of state/government can vote. It contrasts with earlier major crisis episodes, such as the euro area sovereign debt crisis, which was associated with a marked decline in the global attractiveness of the euro. One such feature is safety, as a CBDC would be a claim on the balance sheet of the central bank of issue. To deliver these benefits, a common safe asset should have a very high credit standard, be resilient to idiosyncratic shocks and have sufficient size and liquidity. The Commission is responsible for monitoring whether EU laws are applied correctly and on time. This would help foster financial deepening and capital market integration in the euro area and, in turn, the international role of the euro. The simulations use the baseline assumptions discussed above (i.e. The simulations suggest that a CBDC supports the use of a currency in cross-border payments but is not necessarily a game changer. The Commission will take steps if an EU country does not fully incorporate a directive into its national law by the set deadline or has not applied EU law correctly. Ito, H. and Pasricha G. Central bank swap arrangements in the COVID-19 crisis. The total volume of foreign currency-denominated debt issuance continued to increase over the review period, by 6%, to just over USD2trillion (left panel of Chart10). According to a regular survey of official reserve managers conducted by a global financial institution, almost 70% of respondents mentioned low or negative yields in fixed-income markets as one of the main concerns relevant for their investment strategy, excluding the COVID-19 crisis. In 2020 euro banknotes were mainly exported to, and imported from, euro area neighbouring regions, Sales (exports, left panel) and purchases (imports, right panel) of euro banknotesto/from regions outside the euro area breakdown by destination. Estimates for purchases of US dollars and euro do not account for potential valuation effects stemming from changes in the price of the underlying securities in the portfolio of official investors, to the extent that these are reported at market value. See Cetorelli, N. and Goldberg, L.S., . Recent research finds that, after accounting for the nationality rather than the residence of bond issuers, US bond investments into China were ten times larger than official estimates in 2017 (i.e. [36] By contrast, the share of the US dollar in outstanding international deposits increased by 1.7 percentage points, to almost 54%. The euro exchange rate strengthened over the course of 2020. Together with the planned NGEU securities, bonds issued by the EU could become an important benchmark for the euro-denominated bond market segment for international investors, in turn fostering the international role of the euro. This will be followed by the issuance of up to 750 billion in NGEU bonds over the years 2021-26. Moreover, the share of trade invoiced in US dollars tends to increase for countries which export more homogenous goods; by contrast, the share of the euro declines. Completing banking union would make the euro area more resilient, while progress towards a capital markets union would contribute to deeper and more liquid financial markets. In addition, the measures taken by the ECB to provide euro liquidity to non-euro area central banks have helped to forestall potential adverse impacts of the crisis on the euro area. The ECBs response to the crisis may have had the side effect of supporting the international role of the euro. In particular, the US Federal Reserve responded by introducing a number of measures, including swap lines and emergency lending programmes, which served to ease tensions in US dollar funding markets. The share of the US dollar, the leading currency, in global foreign exchange reserves was stable over the review period. Finally, empirical estimates suggest that standard theoretical mechanisms that foster the use of a large economy's currency i.e. Not so fast: Demand for U.S. currency at home and abroad, 1990-2016, The European economic and financial system: fostering openness, strength and resilience, The initial fiscal policy responses of euro area countries to the COVID-19 crisis, The fiscal implications of the EUs recovery package. EUREP is the Eurosystem repo facility for central banks. However, insofar as NGEU remains relatively modest in size compared with bond markets in other major currencies and is a temporary initiative, it is unlikely to fundamentally change the global status of the euro at this stage. [92] In the latter case, the foreign exchange rate leg of the payment transaction is particularly challenging to arrange. The report covers developments in 2020. The COVID-19 pandemic had some impact on foreign demand for euro cash outside the euro area. Issuing a CBDC would help to maintain the autonomy of domestic payment systems and the international use of a currency in a digital world. At the same time, the fact that the global appeal of the euro remains broadly stable at a low level suggests that only further resolute policy measures and reform efforts would enable the euro to realise its global potential. European Commission (EC) - EU monitor [87] For instance, a large share of internationally traded goods is invoiced in US dollars and, therefore, demand for US dollar-deposits is also strong. [4] From a longer-term perspective, the share of the euro in global official holdings of foreign exchange reserves remained broadly stable at a relatively low level compared with the levels prevailing before the global financial crisis and the euro area sovereign debt crisis. At the Euro Summit on 25 March 2021, leaders of euro area countries stressed that they support strengthening the international role of the euro with a view to enhancing our strategic autonomy in economic and financial matters while preserving an open economy, contributing to the stability of the global financial system, and supporting European businesses and households. 22 June 2023 EU invests 6.2 billion in sustainable, safe and efficient transport infrastructure 20 June 2023 Ukraine: Commission proposes to set up a dedicated Facility to support Ukraine's recovery, reconstruction and modernisation More news Your European Commission President Ursula von der Leyen and the College of Commissioners The European Parliament has been a strong supporter of the Commission ' s new role and of the overall ambition to strengthen the EU ' s capabilities in security and defence (Interview . [106] This dataset provides the respective annual shares of exports and imports invoiced in US dollars, euro, home currencies, and other currencies for 102 countries over the period 1990-2019.[107]. BRUSSELS (AP) Hungary's government will be asked to provide explanations and details about its role in the transfer to the country of 11 Ukrainian prisoners of war freed by Russia, the . Transparency or selective privacy would enable better compliance and know-your-customer checks to be implemented, thereby controlling illicit payment flows, for instance for large transactions. [47] Similarly, the economic recession following the coronavirus (COVID-19) pandemic could affect trust and expectations and again lead to a reshuffling of portfolios. [62] On the demand side, this has been driven by several factors, such as international reserve accumulation and demographic factors, as well as rising global risk aversion and sizeable asset purchase programmes by the major central banks since the global financial crisis. The 45-degree line is shown as a black dashed line. proposing the President of the European Commission. Nevertheless, excluding US Federal Reserve and Government accounts, privately held US Treasury debt is significantly lower, at USD 16.5 trillion. At the same time, NGEU is linked to investment and structural reforms that are expected to increase the growth potential of the euro area and its internal cohesion, increasing the resilience of the euro area economy to shocks and thereby the attractiveness of the euro as global investment currency. The majority of the assets held by US fixed-income funds active globally are denominated in US dollars (over USD 560 billion in 2020). Official holdings of US Treasury securities declined by around USD 150 billion in March 2020, while private holdings declined by USD 130 billion (Chart 6, left panel). It operates as a cabinet government, with 27 members of the Commission ( directorial system, informally known as "Commissioners") headed by a President. While this increase has been common to most major currencies in recent years, 2020 saw relatively rapid growth in international US dollar-denominated green bond issuance, consistent with the broader trends in international US dollar-denominated bonds described above (left panel of Chart 13). Family business - Internal Market, Industry, Entrepreneurship and SMEs [2] To some extent, this development may reflect the effectiveness of the unprecedented policy support measures and coordinated approach that have prevailed in the euro area. Limits on large-value transfer should apply not only for individual transactions but also for the value transacted over a certain period to prevent them being circumvented through the use of repeated, smaller-value transfers. Special Feature C provides further insights on the role of the euro as an invoicing currency for global trade. See Alogoskoufis, S., Giuzio, M., Kostka, T., Levels, A., Vivar, L.M. It is convened and chaired by itsPresident, who is elected by the European Council itself for a once-renewabletwo-and-a-half-year term. From a global perspective, the euros share in trade invoicing is more in line with the share of trade in which at least one euro area country is involved. The specific design features of a CBDC would have implications for its global outreach and ultimately the international role of the currency in which it is denominated by influencing the ability and incentives of non-residents to use it as a means of payment, unit of account and/or store of value. The corresponding ratio also rose for the euro. Although borrowers from the United Kingdom reduced their issuance of euro-denominated debt by around USD 5 billion, Japanese issuers and issuers in other advanced economies increased their own issuance by around USD 22 billion. It remained close to a two-decade low, in line with previous trends towards gradual diversification of global reserve portfolios. [26] Issuance of US dollar-denominated international bonds exhibited a broadly similar pattern, albeit less pronounced, with an increase of close to 2 percentage points in the share of public sector issuers, while the share of financial and other services firms declined by 2 percentage points (right panel of Chart12). At the same time, the table shows that the share of central banks and official investors ranges between 30% and 37% for shorter-dated bonds and declines to around 15% for longer maturities (see the fourth column of the table). The yellow bars are countries with exchange rate regimes anchored to the euro. the Danish krone, the Swedish krona or the Norwegian krone) fail to meet the relevant conditions required for this approach. International issuance of green bonds, i.e. This was possibly due to deviations in covered interest parity between the US dollar and the Japanese yen, which led to higher hedged returns compared with simple cash returns on Japanese bonds for US investors seeking to obtain synthetic exposure to the yen with foreign exchange swaps and other derivative contracts. About the European Commission native rendition (686.014), Download All the bonds issued in 2020 were highly oversubscribed (between 11.5 and 13 times), resulting in very favourable financing conditions. [97] Whether this would significantly reduce the attractiveness of the CBDC as a global store of value would depend on the price elasticity of demand from non-residents. The unconditional mean might differ from the deterministic steady state of the model owing to uncertainty. At current exchange rates, it remained unchanged overall. For assistance, contact your network support team. Source: ECB.Notes: Under the swap line arrangements, the ECB provides euro liquidity against currencies accepted by the ECB for swap line operations. Country and time-fixed effects are included in all regressions. Non-euro area investors accounted for 45% of the take-up for the 15-year SURE bond, which was comparable to foreign investor interest in the Italian 15-year BTP (41%). Data at constant exchange rates are not available for global foreign exchange settlements. Latvia and San Marino are excluded owing to data limitations. Sources: ECB staff calculations based on data released by EU and national authorities.Notes: Data refer to distribution at the time of the first allocation of SURE bonds. native rendition (656.752), Download Furthermore, the ECBs monetary policy measures in response to the pandemic have been swift and forceful. This site is managed by Directorate-General for Communication and is an official website of the European Union, Rue de la Loi/Wetstraat 175, 1048 Bruxelles/Brussel, Belgium, Latest news from EU institutions and bodies, Contact details: institutions, bodies and agencies, heads of state or government of all EU countries, Court of Justice of the European Union (CJEU), European Economic and Social Committee (EESC), European Data Protection Supervisor (EDPS), Publications Office of the European Union, nominates and appoints candidates to certain high profile EU level roles, such as the ECB and the Commission. 599646, complemented with ECB staff judgement. Second, the euro is used as a vehicle currency mainly in Europe and some parts of Africa, which suggests that, even if the US dollar is the dominant currency globally, the euro plays a leading role in these regions.
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