A large part of those interventions took place in US dollars, mechanically underpinning the share of the euro in global foreign exchange reserves.
Tentative evidence suggests that concerns about unilateral sanctions may have been another factor supporting diversification of the reserve portfolios of some central banks, such as the Central Bank of Russia.
Estimates from a simple error-correction model that aims to disentangle long-run stock effects from short-run flow effects of net purchases of sovereign debt by foreign official reserve holders suggest that the “exorbitant privilege” enjoyed by the euro is economically significant.
Foreign official reserve holdings of debt securities have compressed term premia on euro area long-term yields by around 110 basis points, which compares with around 160 basis points for US long-term yields.
Mario Draghi President In 2018 and early 2019, there were tentative signs of a recovery in the international use of the euro, with a composite index of the euro’s international role increasing in the review period, albeit from historic lows (see Chart 1).
Moreover, euro area-specific developments, such as progress towards completing banking union and deepening EMU more generally, helped to further strengthen the euro area’s resilience and, in turn, to boost the attractiveness of the euro internationally.
In particular, it shows that the balance between these benefits and costs has shifted, with some of the traditional effects of international currency status having declined in relevance while others have become more apparent.
As a result, changes in the global role of the euro may have consequences for the conduct of monetary policy, all of which must be understood and taken into account when designing euro area monetary policy.
The European Commission launched an initiative to strengthen the international role of the euro and issued a Communication to this effect on 5 December 2018.
The Eurosystem supports these policies and emphasises the need for further efforts to complete EMU. The first of these looks at developments since the start of Economic and Monetary Union 20 years ago, assessing the economic benefits and costs of the international role of the euro from a central banking perspective.
The third special feature assesses the role of the US dollar in trade invoicing for the global transmission of US and euro area monetary policy shocks.