The euro was resilient in 2022 despite Russia’s war in Ukraine and rising geopolitical risks and remained the world’s second most important currency, according to the European Central Bank (ECB).
The ECB published its annual review on the international importance of the euro on Wednesday, highlighting its resistance in 2022 despite the increase in geopolitical risks and high inflation.
The share of the euro in various indicators of international use of the currency is close to 20% on average.
“Last year was marked by the outbreak of Russia’s war in Ukraine and increased geopolitical risks, against a background of rising inflationary pressures,” the ECB said in the report.
In this context, the euro remained the second most important currency in the world.
ECB President Christine Lagarde says in the report that “Despite the succession of new shocks, the international importance of the euro remained resilient in 2022” and that this resistance was remarkable.
However, adds Lagarde, “International currency status should not be taken for granted. This new landscape increases the duties of European politicians to create the conditions for the euro to prosper.”
The euro’s share of global euro holdings of foreign exchange reserves increased last year by 0.5 percentage points to 20.5%, measured at constant exchange rates.
The share of the euro also increased in currency settlements and in the circulation of international debt, loans and deposits
The international importance of the euro in the issuance of foreign currency-denominated bonds, including green bonds, and in the bills of imports and exports from outside the euro area remained stable.
Executive committee member Fabio Panetta said in introducing the report that “greater European economic and financial integration will be essential to increase the resilience” of the euro in a more fragmented world economy.
SANCTIONS ON RUSSIA DO NOT CHANGE THE INTERNATIONAL USE OF THE DOLLAR AND THE EURO
Shortly after Russia invaded Ukraine, unprecedented sanctions were imposed on Russia, including freezing almost half of the Russian central bank’s foreign exchange reserves and excluding many Russian banks from the SWIFT international payment system.
For this reason, it was thought that some countries that are not friends of the US would turn their backs on the dollar and the euro by reducing their exposures, but this has not been the case.
“The fragmentation in the international monetary system since the invasion of Russia has so far been restricted to announcements and specific cases” and does not point to a major change in trend, according to the ECB.
For example, Gazprom and China National Petroleum Corporation (CNPC) signed agreements in September last year to start paying for gas supplies to China in rubles and yuan, instead of dollars and euros.
Indian steel and cement makers bought Russian coal with Chinese renminbis, United Arab Emirates dirhams, Hong Kong dollars and euros.
Russian President Vladimir Putin and Turkish President Recep Tayyip Erdogan have agreed to pay 25% of Russian natural gas supplies to Turkey in rubles in the near future.
Russia and the Central Bank of Iran discussed earlier this year creating a gold-backed stable digital currency for foreign trade settlements in a special economic zone.
Argentina and Brazil begin preparations to create a common currency and invite other Latin American countries to join the bloc.
The President of Brazil, Luiz Inácio Lula da Silva, asked the BRICS, made up of Brazil, Russia, India, China and South Africa, in April of this year, to replace the dollar and use their own currencies in international trade during a visit to China. .
Russia has increased its use of the renminbi in its exports in recent months, something it did not do before the war.
The use of the euro in Russia’s trade has declined and has been displaced by the renminbi.
The share of Russia’s trade invoiced in renminbi increased to 16% in December 2022 from almost 0 before the invasion of Ukraine.
The renminbi is not a short-term alternative to the dollar and the euro mainly because it does not fluctuate freely in the foreign exchange market but is closely watched by the Chinese authorities, but this can change and something that has not happened in twenty years could happen in the next three years.
“The international importance of the Chinese renminbi has progressed but remains limited. Limited capital account convertibility and limited exchange rate flexibility impede the development of this role of the renminbi,” which needs dollar support, add economists from the Chinese renminbi. ECB.
What has occurred since the outbreak of the war in Ukraine is an increase in the accumulation of gold reserves in countries friendly to China and Russia.