EUROPEAN CENTRAL BANK THE INTERNATIONAL ROLE OF THE EURO JULY 2009 THE INTERNATIONAL ROLE OF THE EURO OF ROLE THE INTERNATIONAL JUL Y 2009 THE INTERNATIONAL ROLE OF THE EURO JULY 2009 In 2009 all ECB publications feature a motif taken from the €200 banknote. © European Central Bank, 2009 Address Kaiserstrasse 29 60311 Frankfurt am Main Germany Postal address Postfach 16 03 19 60066 Frankfurt am Main Germany Telephone +49 69 1344 0 Website http://www.ecb.europa.eu Fax +49 69 1344 6000 All rights reserved. Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged. As at 30 June 2009. ISSN 1725-2210 (print) ISSN 1725-6593 (online) CONTENTS ABBREVIATIONS 6 BOXES 1 Central bank responses to liquidity FOREWORD 7 needs in foreign currency during the global fi nancial crisis 28 1 INTRODUCTION 9 2 The international role of the euro in the market for asset-backed 2 MAIN FINDINGS 11 securities 31 3 Invoicing and settlement currencies 3 THE EURO IN GLOBAL MARKETS 15 in international trade: an overview 3.1 The euro in international debt of available data 36 markets 15 4 Exchange rate pass-through and the 3.2 The euro in international loan international role of the euro 39 and deposit markets 22 5 Empirical determinants of the 3.3 The euro in foreign exchange currency composition of reserves: and derivatives markets 26 new evidence from a panel of 3.4 The euro in international trade EU Member States and emerging in goods and services 34 economies 45 6 Is the global fi nancial crisis 4 THE EURO IN THIRD COUNTRIES 43 increasing currency substitution in 4.1 Offi cial use: the euro in third central, eastern and south-eastern countries’ foreign exchange reserves 43 Europe? Initial evidence from the 4.2 Private use: the euro as a parallel Euro Survey by the Oesterreichische currency in third countries 48 Nationalbank 50 5 SPECIAL FOCUS: CURRENCY CHOICE CHARTS IN THE ISSUANCE OF FOREIGN 1 Domestic and international CURRENCY-DENOMINATED BONDS 55 market segments of euro and 5.1 Introduction 55 dollar-denominated debt 17 5.2 Currency choice in international 2 Share of the euro in portfolio bond issuance: a review of the investment assets held in debt literature 55 securities as at end-2007 17 5.3 Issuance of foreign currency- 3 International (narrow) and denominated bonds: 1999 to 2008 58 global measures of outstanding 5.4 Modelling currency choice: international debt securities 18 empirical methodology 60 4 Stock of international debt 5.5 Findings 62 securities (narrow measure): 5.6 Conclusions 65 outstanding amounts and currency shares 19 5 Outstanding volume of euro- REFERENCES 66 denominated international bonds and notes by sector 20 STATISTICAL ANNEX S1 6 Outstanding volume of international bonds and notes DOCUMENTS ON THE INTERNATIONAL by sector 20 ROLE OF THE EURO PUBLISHED BY THE 7 Outstanding volume of EUROPEAN CENTRAL BANK I international bonds and notes by region 21 ECB The international role of the euro July 2009 3 8 Euro share in the stock of 28 The share of the euro in the outstanding international debt loans of selected EU Member securities in selected regions States and EU candidate countries 53 (Q4 2008) 22 29 Interest rate differential for the 9 International loan markets: all euro versus issuance (number) cross-border loans by currency 22 of euro-denominated foreign 10 Cross-border loans between euro currency bonds 57 area and non-euro area entities 23 30 Outstanding amount of 11 International deposit markets: all international debt securities, cross-border deposits by currency 24 by currency 58 12 Cross-border deposits between 31 Average maturity of euro area and non-euro area entities 25 international debt securities, 13 Interbank spot foreign exchange by currency (1999-2008) 58 transactions in EBS 26 32 Gross issuance (value) of 14 Settlement volumes in the CLS international debt securities, system 27 by type 59 15 Currency breakdown of 33 Gross issuance (number) of settlement in the CLS system 27 international bonds and notes, 16 Currency breakdown of OTC by major currency 60 interest rate derivatives 30 34 Interest rate differentials versus 17 Currency breakdown of OTC issuance (number) of foreign foreign exchange derivatives 30 currency-denominated bonds 64 18 The euro’s share as a settlement/ invoicing currency in extra-euro TABLES area merchandise trade 35 1 Key data on the international 19 The euro’s share as a settlement/ role of the euro 11 invoicing currency in extra-euro 2 Euro-denominated debt area trade of services 35 securities by residence of holder 20 The euro’s share in merchandise and issuer as at mid-2008 16 trade of non-euro area countries 37 3 Alternative measures of debt 21 Trade with the euro area and securities supply and major trade denominated in euro 38 currencies’ shares 18 22 Trade denominated in euro as a 4 Net issuance of international ratio of trade with the euro area 38 debt securities 19 23 Currency composition of global 5 List of top 20 non-euro area foreign exchange reserves 44 issuers of euro-denominated 24 Share of the euro in foreign bonds and non-US issuers of exchange reserves of selected US dollar-denominated bonds 21 countries 45 6 Notional principal outstanding 25 Net shipments of euro banknotes in global derivatives markets 29 to destinations outside the euro area 48 7 Relative variability of currency 26 Regional breakdown of euro shares in global foreign banknote purchases from and exchange reserves 44 sales to destinations 49 8 Count model of foreign currency 27 The share of the euro in the choice in the issuance of foreign deposits of selected EU Member currency-denominated bonds 63 States and EU candidate countries 52 ECB The international role of the euro 4 July 2009 CONTENTS STATISTICAL TABLES 1 Currency breakdown of portfolio investment assets held in debt securities at the end of 2007 S1 2 Currencies’ shares in the stock of outstanding international debt securities in selected regions S2 3 Outstanding international debt securities, by currency S3 4 The euro’s share as a settlement/ invoicing currency in extra-euro area exports and imports of goods and services of selected euro area countries S4 5 The euro’s share as a settlement/ invoicing currency in extra-EU exports and imports of goods of selected euro area countries S4 6 The euro’s share in exports and imports of selected non-euro area countries S5 7 Outstanding international loans, by currency S6 8 Outstanding international deposits, by currency S7 9 Countries with exchange rate regimes linked to the euro S8 10 Global holdings of foreign exchange reserves, by currency S9 11 Currency composition of foreign exchange reserves for selected countries S10 12 Outstanding euro-denominated bank deposits in selected countries and dependent territories S11 13 Outstanding euro-denominated bank loans in selected countries and dependent territories S12 ECB The international role of the euro July 2009 5 ABBREVIATIONS COUNTRIES AT Austria KR Korea, Republic of AU Australia LT Lithuania BE Belgium LU Luxembourg BG Bulgaria LV Latvia CA Canada MY Malaysia CH Switzerland MK Macedonia, former Yugoslav CY Cyprus Republic of CZ Czech Republic MT Malta DE Germany MX Mexico DK Denmark NL Netherlands DZ Algeria PL Poland EE Estonia PT Portugal ES Spain RO Romania FI Finland RU Russia FR France SE Sweden GR Greece SI Slovenia HR Croatia SK Slovakia HU Hungary TH Thailand ID Indonesia TR Turkey IL Israel UA Ukraine IN India UK United Kingdom IT Italy US United States JP Japan OTHERS ABS Asset-backed securities BIS Bank for International Settlements CDS Credit default swap CLS Continuous Linked Settlement COFER Currency Composition of Offi cial Foreign Exchange Reserves CPIS Coordinated Portfolio Investment Survey EA Euro area EBS Electronic Broking Services ECB European Central Bank ESCB European System of Central Banks EU European Union IMF International Monetary Fund MFI Monetary fi nancial institution OeNB Oesterreichische Nationalbank OTC Over the counter PVP Payment-versus-payment SPV Special purpose vehicle TARGET Trans-European Automated Real-time Gross settlement Express Transfer system TIC Treasury International Capital ECB The international role of the euro 6 July 2009 FOREWORD FOREWORD substitution in countries with close geographical and institutional links to the euro area. This is the eighth issue of the annual review of the international role of the euro. It reviews trends Developments in the role of the euro abroad are in the use of the euro by non-euro area residents primarily the result of market forces and private in global markets and in individual countries sector decisions. The ECB will continue to outside the euro area, and aims to deepen the monitor the international role of the euro and to Eurosystem’s analytical understanding and provide regular information to the public. statistical coverage of the international use of the euro. The main fi ndings are in line with those of Jean-Claude Trichet earlier reviews. The international use of the euro has continued to display a relatively high degree of stability over the past year. Although the global fi nancial crisis has had a very profound impact on many market segments discussed in the review, the relative importance of major international currencies has remained broadly unchanged across nearly all market segments. The review also confi rms the strong regional character of the international role of the euro. There is some evidence that the euro has further strengthened its role in currency and asset President of the European Central Bank ECB The international role of the euro July 2009 7 1 INTRODUCTION This review examines recent developments in This provides another relevant angle from which the use of the euro by non-euro area residents to assess the degree of “internationalisation” of in international trade and international fi nancial the euro.2 transactions.