Euro healing, but still distant No 2 to US dollar

18/07/2014 09:45 AST

International investors are regaining their appetite for euros as the shared currency recovers from a debt crisis that threatened to break it up.

But the euro, which is shared by 18 countries, fell further behind the US dollar last year in another key measure of importance and prestige: its use as a reserve currency by the world’s central banks.

The European Central Bank said on Wednesday that foreign demand for stocks, bonds and other portfolio investments in euros rose to 3.7 per cent of eurozone economic output in 2013. That was up from 3.0 per cent the year before.

Benoit Coeure, a member of the bank’s six-member executive board, said investors were responding to the easing of the crisis and showing “full confidence that the euro will stay.”

Yet other indicators on the euro’s global use remained mixed. In particular, the currency’s share of global central bank reserves slipped to 24.4 percent from 25.3 per cent.

The US dollar remains on top, with 61.2 per cent. Central banks build up reserves to cushion their economies against possible turbulence.

Presenting the bank’s annual report on international use of its currency, Coeure said one reason for that is that conservative central bank officials may move more slowly than private investors to adjust their holdings.

Another factor could be a long-term diversification in which banks add more currencies from emerging economies such as China, reflecting their increasing weight in the global economy.

Khaleej Times