Euro gains in global use, but US dollar still the boss

FAN Editor

The euro has gained ground on the dollar as a global currency used for government reserves, rebounding from historic lows as U.S. sanctions deter some countries’ use of the U.S. currency.

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The dollar, however, is still very much the dominant international currency for trade, borrowing and reserves.

That is despite a slow diversification toward other currencies over recent years, most recently toward the Chinese yuan.

The ECB said Thursday that the euro’s share of measurable foreign reserves held by central banks and governments around the world rose 1.2 percentage points during 2018 to 20.7%, reversing a declining trend. The dollar’s share was down slightly at 61.7%.

Factors affecting the dollar’s use include countries selling dollars to support their own currency, and U.S. financial sanctions such as those against Russia, which has moved some holdings to other currencies to avoid U.S restrictions. Russia sold about $100 billion worth of U.S. dollar-denominated assets in the wake of new rounds of U.S. sanctions, making the euro Moscow’s main currency holding with 39% of reserves.

China also slightly reduced its dollar holdings in the form of U.S. Treasurys, by about $60 billion, during a period of trade tension with the U.S., leaving its holdings at a still massive $1.1 trillion.

Some developing countries, meanwhile, have moved to prop up their national currencies. To do that, they often buy their own currency using dollar holdings, reducing their reserves of the U.S. currency.

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