Euro Maintains Second Significant Position as Currency - Labeled as "Generally Stable" (ECB)
The Euro Holds Steady, Despite Lower Interest Rates
In the global foreign exchange reserves, the Euro still confidently ranks as the second most powerful currency, clocking in at 20%. Remarkably, this has been the status quo since the onset of the Russian-Ukraine conflict over three years ago [1][2]. In contrast, the US Dollar's share has dipped by two points and now stands at 57.8%.
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The steady international role of the Euro in 2024 has left many in awe. Spearheading the European Central Bank (ECB), Christine Lagarde, shared, "Despite our rate cuts last year, the international role of the Euro remained consistent. The rule of law plays a crucial role in preserving global trust in our currency" [1].
As the US presidential administration embarks on a novel trade policy, there lies an opportunity for the Euro to seize a greater role [1]. If Eurozone governments and companies gain access to cheaper loans, domestic demand will be boosted. Thus, the Eurozone may experience less impact from exchange rate fluctuations as more trade transpires in Euros, insulating Europe from unpredictable capital flows. Additionally, Europe will be better equipped to handle sanctions and other coercive measures [1].
The ECB's annual report highlights the need to remain vigilant about the challenges faced by the Euro. It's evident that changes are afoot, as central banks stockpile gold, countries explore alternatives to traditional payment systems, and initiatives to promote the use of digital currencies gain traction [1][2].
Notable Insight: The robustness of fiscal and monetary policies, the key role of institutions, digital and cross-border advancements, ECB's role in providing liquidity and security, geopolitical and trade dynamics, and inflation and monetary policy coordination contributed to the Euro's steady international role in the face of competition and market volatility [1][2].
[1] European Central Bank (ECB), "Annual Report on the International Role of the Euro, 2024," accessed October 10, 2024.
[2] International Monetary Fund (IMF), "World Economic Outlook: Global Growth Prospects," accessed October 10, 2024.
- In contrast to the US Dollar's dip in share, the Euro's steadfast position in global foreign exchange reserves, at 20%, is noteworthy, especially considering its role in business and finance.
- As Christine Lagarde, head of the European Central Bank, noted, the Euro's consistent international role, even with lower interest rates, is partly attributable to the rule of law, trust in the currency, and the robustness of European fiscal and monetary policies.
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