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International role of the euro

Between 30% and 50% of euro banknotes by value are estimated to be held outside the euro area. The euro can be used as a reserve currency (as part of a country’s foreign exchange reserves), for saving purposes (hoarding of euro banknotes, particularly in periods of tension), for trade (for exports and imports), or as a currency peg.

Introduced in 1999, the euro has gradually become the single currency of 19 of the European Union’s 27 Member States, which together make up the euro area. Within the Eurosystem, more than 300 million citizens use the euro on a daily basis to make or receive payments in exchange for goods and services, to save or to make investments. But the use of the euro is not just limited to the euro area – it also extends beyond the region’s borders.

The value of banknotes in circulation can be broken down into three components: transactions, hoarding, and holding outside the euro area.

The European Central Bank estimates that between 30% and 50% of euro banknotes (by value) are held outside the euro area, especially in neighbouring countries.  At end-December 2020, at least EUR 167 billion worth of banknotes were estimated to be in circulation outside the euro area (see chart below), near to 12% of the value of euro banknotes in issuance. However, this figure only shows net shipments of notes to non-euro area countries by major global banks operating in the currency markets, and is probably the minimum estimate of the actual stock of euro notes outside the single currency bloc. It fails to take into account other channels of outflows such as tourism, transfers of funds by migrants, and the shadow economy.

The COVID-19 pandemic had a strong impact on foreign demand for euro cash outside the euro area. Net outflows of banknotes decreased by an unprecedented 2%. Exports of euro banknotes to regions outside the euro area halved in 2020, while imports fell by around 40% due to travel restrictions.

The EU has complemented national measures (fiscal emergency measures and liquidity support) with lending and bond issuances in euro area countries. The expected effect is to support the economic recovery and the attractiveness of the euro as a worldwide investment currency and to increase the resilience of European economies.

The main international uses of the euro are:

  • The euro: a reserve currency – At the end of 2019, 20.6% of international foreign exchange reserves were held in euro, or a total of USD 11,076 billion (from 20.1 for Q1 2020 to 21.2% for Q4 2020, amounting USD 11,871 billion in Q4 2020) . Despite rising international trade tensions and a protracted slowdown in global growth, the euro remains the second most important currency in the international monetary system, behind the US dollar.
  • The euro: a hoarding currency outside the euro area – Non-residents use euro banknotes, particularly the higher denominations, as a store of value. In times of economic or political stress, they even use them to hoard cash as a last resort, helping to safeguard financial stability.
  • The euro: a trading currency – In 2020, the euro is used as the invoicing currency in 59.7% of the euro area’s exports and 51.3% of its imports.
  • The euro: a currency peg – Some foreign countries use the stability of the euro's monetary system to strengthen their domestic economy by pegging their currencies to the euro. In general, these are European Union Member States that do not belong to the euro area but with which the euro area maintains economic and monetary relations. Other countries such as Andorra, Monaco, San Marino and the Vatican City, use the euro as an official currency by virtue of specific monetary agreements with the euro area.

Each year, the European Central Bank publishes a report on the international role of the euro.

Updated on: 08/11/2021 17:13