Euro increasingly used as funding currency, ECB says

8th July 2015, Comments 0 comments

International borrowers are increasingly turning to the euro when borrowing money, thanks to the low interest rates in the single currency area, the European Central Bank said on Wednesday.

"In an environment characterised by low and declining interest rates in the euro area, the euro was increasingly used as a funding currency by international borrowers" in 2014 and early 2015, the ECB wrote in its annual report on the euro's international role.

"The share of the euro in international debt issuance increased by nine percentage points to almost 30 percent in the first quarter of 2015, compared with the same quarter of 2014," it said.

The ECB said that the decline in the value of the euro -- which has fallen by 10 percent in the 12 months to May 2015 -- affected different indicators of the euro's international use.

At constant exchange rates, most indicators used to assess the euro's international use "either recovered further from their dip in the wake of the euro area sovereign debt crisis or remained broadly stable over the review period," the ECB said.

One of the most visible effects of the euro's depreciation over the review period was the decline in the nominal share of the euro in globally disclosed foreign exchange reserve holdings, the ECB said.

The share declined by 2.2 percentage points to 22.2 percent in 2014.

"Adjusting for exchange rate changes, however, the share of the euro remained broadly stable (declining by 0.2 percentage point), which suggests that valuation changes were the overarching determinant of the decline," the report said.

"Despite the impact of globally diverging monetary policy cycles, foreign exchange managers on average were not actively shifting portfolios away from the euro area," said ECB executive board member Benoit Coeure.


© 2015 AFP

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