The financial internationalization of the euro remains stable
In 2018, European companies favored the use of the dollar in their commercial exchanges, with 45% of transactions against 42% for the euro. In 8 years, the use of the single currency has declined. How can this be explained? What does the future hold for the European project? Here are some answers.
The dollar remains the undisputed safe haven
On June 9, 2020, the European Central Bank (ECB) published its annual report on the international role of the single currency. The document, which looks back at 2019, shows that the euro's market share has been falling for a decade, whether in terms of financial reserves, contract wording or international loans. Before the 2008 financial crisis, it stood at 24%. It now stands at 19%, up slightly from a low of 16% 3 years ago.
The report points out that while "the euro remains the world's second most widely used currency", it is unable to hold its own against the dollar.it has not managed to gain a foothold against the dollar, which accounts for 60% of financial foreign exchange reserves, i.e. almost 3 times more than the European currency. In the payments category alone, the euro has a market share (35%) close to that of the greenback (42%).
The slow internationalization of the European currency can also be explained by the very low level of interest rates in the eurozone, which has encouraged foreigners to issue euro-denominated debt at a particularly low cost. In 2019, companies issued almost $300 billion in euro-denominated bonds, with US companies accounting for half of this amount. As a result, the euro is becoming the world's borrowing currency, bringing it closer to the yen, a safe-haven currency that falls when markets are buoyant and rises when worries return.
What's the outlook for the euro?
Against the backdrop of the current pandemic crisis, a number of specialists are questioning whether the eurozone is about to experience a new crisis. To cope with the consequences of the health crisis, the State has already been forced to invest billions of euros to support the cash flow of very small businesses and SMEs, granting moratoria on social security charges and even tax relief. He has also backed the short-time working scheme, the cost of which is still unknown. For its part, to calm the markets, the ECB launched a colossal rescue plan at the end of March, deciding to buy back securities worth 750 billion euros.
As a result, the main fears of players regarding the future of the European project relate above all to the characteristics of the markets, which limit the appeal of the European currency. One thing is certain: the effects of the coronavirus crisis will be "devastating" for the eurozone, according to the European Commission, which anticipates an unprecedented recession in 2020.