Use of the Euro Declines Due to Crisis

International use of the euro slipped last year because of the debt crisis in Europe, but the U.S. dollar held its own as the world’s leading currency for reserves held by central banks.

Currencies not traditionally used as reserves, such as the Canadian and Australian dollars, gained in favor as those countries enjoyed steady growth and lower debt than major economies.

The European Central bank said Tuesday that the euro’s share among the currency reserves held globally by central banks fell to 23.9 percent in 2012 from 25.1 percent the previous year. The dollar’s share was little changed at 61.9 percent.

The ECB said the financial crisis that has afflicted the 17-country eurozone was a factor discouraging use of the euro for reserves, which are often held in the form of government bonds. Lending across borders in the eurozone has dropped, diminishing the liquidity that reserve holders like to see. Lower liquidity means there are fewer buyers and sellers readily found.

The eurozone countries have struggled with heavy levels of public debt — Greece, Portugal, Ireland and Cyprus have needed financial rescue and even large economies like Spain and Italy have worryingly high debt. Concern over that debt eased only after the European Central Bank came up with a plan to buy the government bonds issued by countries that promise to reform.

In its annual report on international use of the euro, the ECB also found that there was less borrowing in euros internationally by companies because they could get lower interest rates by selling bonds denominated in U.S. dollars.

via Mainichi

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