Is the euro a great currency? Yes, to a certain extent. The European currency is at the top of the most important currencies in the international financial system. But it remains in touch before the colossal US dollar.
The euro has been the official currency of the European Union since 1999. It is managed and distributed by the European Central Bank (ECB). Some 340 million people use it on a daily basis in the euro zone (19 countries in 2020). In total, around sixty countries and territories around the world use it or have a currency linked to it. The decor is set. However, is the euro an influential currency in the international monetary and financial system?
The euro is one of the world's main currencies
The euro is an essential currency in international markets and in the global economic landscape. The proof ?
Every day, hundreds of millions of euros circulate on the foreign exchange market. The single currency rose to second place on the podium of the most traded currencies on Forex, behind the US dollar and ahead of the Japanese yen.
The euro is the second largest reserve currency on the planet, after the US dollar. At the end of 2018, 20.7% of global foreign exchange reserves were denominated in euros, equivalent to 11,418 billion euros. (1)
The euro is the reference currency for transactions on Euronext, one of the world's largest stock exchanges , with more than 1,400 companies listed.
The euro is an anchor currency for several countries. The Danish krone, for example, is pegged to the single currency through the European exchange rate mechanism. Denmark thus benefits from the stability of the euro to ensure the stability of its own currency.
The euro is the second most used currency for international payments. The euro is used as the invoicing currency in 61.6% of euro area exports. (1)
The euro is a means of hoarding outside the euro zone. That is to say ? People keep physical currency denominated in euros (coins and banknotes) in order to build up stores of value, often out of mistrust of the financial system. Around 33% of euro banknotes circulate outside the euro zone. (2)
But the euro remains very secondary to the dollar ...
The euro is an essential currency in international markets and in the global economic landscape. But the European currency is constantly being overtaken by the US dollar by far.
As mentioned above, the dollar is the first currency most traded on the foreign exchange market (3) . And it is the first reserve currency on the globe (over 60% of total foreign currency reserves, in other words, the dollar weighs almost two-thirds of world reserves.) (4)
The US dollar is used in almost 45% of international payments (5)
About 50% of dollar banknotes circulate outside the United States (reminder: 33% for the euro). (6)
Many major commodities are listed in dollar markets (like gold, oil, sugar, coffee, etc.).
What to remember from all that ?
The euro is a great currency, there is no doubt. But, whatever the criterion taken into account (currency most traded on Forex, most important reserve currency, etc.), it remains the 2nd world currency after the US dollar. It is only with regard to international payments that the difference is moderate (10 points difference)