The Role of the Euro in the International Monetary Arena: Present and Prospects

Since the introduction of the euro as a single currency in the countries that participate in the European Economic and Monetary Union (EMU) fully, there has been growing empirical evidence that this currency is becoming the prominent invoicing and settlement currency in trade between the Euro Area countries and the rest of the European Union (EU) — notably with respect to the new member countries of the EU — as well as in trade relations between the latter countries themselves, and between them and non-EU countries (see European Central Bank 2005a, 2005b; Goldberg 2005). The 2005 Review of the International Role of the Euro by the European Central Bank (2005b) confirms the strong regional and institutional pattern that continues to characterize the internationalization of the euro. In particular, from mid-2004 to mid-2005, the share of the euro in the stock of international debt securities rose to 31.5 per cent (from a share of 30.7 per cent in the previous twelve-month period),1 whilst in cross-border loans (6.2 per cent) and deposits (8.4 per cent) as well as in foreign exchange trading (43.0 per cent) the euro’s share remained stable. By contrast, the euro has been increasingly featuring as invoicing and settlement currency in international trade concerning regions neighbouring the Euro Area, notably within the so-called ‘euro time zone’ (Mazzaferro et al. 2002) as well as in the so-called ‘euro bloc’ (Padoa-Schioppa 2004).2