The international role of the euro 2017 report

Transcription

1 The internatinal rle f the eur 2017 reprt Arnaud Mehl 5 Octber 2017

2 Eur remains secnd mst imprtant currency Snapsht f the internatinal mnetary system (percent f ttal) USD Renminbi 60 EUR 63.0 JPY Internatinal debt Internatinal lans Freign exchange turnver Glbal payment currency Freign exchange reserves Surces: BIS, IMF, SWIFT, and ECB calculatins. Nte: Data as at end- r latest available. 2

3 Eur lst sme grund in, albeit nt unifrmly Share f the eur (percentages, unless therwise indicated) Indicatr Latest Cmparisn perid Difference (percentage pints) Stck f glbal freign exchange reserves with knwn currency cmpsitin, at cnstant exchange rates (Q4 ) (Q4 ) Oustanding internatinal debt securities: narrw measure, i.e. excluding hme currency issuance, at cnstant exchange rates (Q4 ) (Q4 ) Oustanding internatinal lans: all crss-brder lans, excluding interbank lans, at cnstant exchange rates (Q4 ) (Q4 ) Oustanding internatinal depsits all crss-brder lans, excluding interbank lans, at cnstant exchange rates (Q4 ) (Q4 ) Freign currency-denminated debt issuance at current exchange rates () () Daily freign exchange trading (settled by CLS), annual averages, at current exchange rates, as a percentage f freign exchange settlement Freign currency-denminated lans in CESEE cuntries, as a percentage f ttal lans, at current exchange rates¹ Freign currency-denminated depsits in CESEE cuntries, as a percentage f ttal depsits, at current exchange rates¹ Invicing f gds exprted frm the eur area t nn-eur area cuntries, at current exchange rates Invicing f gds imprted t the eur area frm nn-eur area cuntries, at current exchange rates Freign hldings f eur area debt denminated in eur (as a percentage f ttal eur-denminated debt) 3 Surces: BIS, Dealgic, IMF, natinal surces and ECB calculatins () () () () () () () () () () (Q4 ) (Q4 )

4 Cnclusins Heightened nn-ecnmic risks affected eur s internatinal rle in and early 2017 Geplitical develpments, eur area electins, uncertainty created by Brexit, new US administratin, etc. Eur cntinued t lse sme grund, albeit nt unifrmly s Share dwn fr mst indicatrs Share up in glbal FX reserves & payments Eur remained unchallenged as 2 nd mst imprtant currency glbally Capital Markets and Banking Unins culd buttress eur area financial markets depth and liquidity & indirectly the eur s internatinal standing 4

5 Special features The eur and the gegraphy f the freign exchange market Bulk f FX transactins in eurs initiated utside the eur area, ntably in the City f Lndn; technlgical change, ntably electrnic trading, has majr implicatins fr the gegraphy f FX trading 5

6 Key rle f the City f Lndn fr FX trading in eurs Bulk f eur FX trades initiated utside the eur area, ntably in the City f Lndn (percentages) UK share f glbal FX trading 10 percentage pints up since 2001 (percentages) Switzerland 2.7 Rest 12.0 Singapre & Hng Kng 6.8 Eur area Eur area U.K. U.S U.S U.K Surces: BIS and ECB calculatins. Ntes: Share f selected cuntries in glbal freign exchange transactins in eurs,. The data include spt, frward, swap and ther transactins. They are adjusted fr lcal interdealer transactins. 6 Surces: BIS and ECB calculatins Ntes: Evlutin f the share f selected cuntries in glbal freign exchange transactins in eurs,

7 Identificatin f technlgical shcks The wrld s undersea fiber-ptic cable netwrk nw 7

8 Big effect f technlgy n gegraphy f FX trading Fiber-ptic cable cnnectins cause cuntries t lse trading in their currency t majr financial centers, like Lndn (y-axis: share f trading f currency i in majr financial centres in percentages; x-axis: time zne difference in hurs frm cuntry i t clsest majr financial center) N cable Cable Electrnic trading erdes effects f standard spatial frictins (distance, liquidity, capital cntrls) that make trading mre dmestic Sizeable implicatins fr gegraphy f FX trading City f Lndn big beneficiary as hub fr fibreptic cables Cntribute t limit relcatin f FX trading pst-brexit? Surce: Eichengreen, Lafarguette and Mehl (). Ntes: Estimated impact f submarine fiber-ptic cable cnnectins n the effect f time zne distance n the gegraphy f freign exchange trading. 8

9 Special features The eur and the gegraphy f the freign exchange market Bulk f FX transactins in eurs initiated utside the eur area, ntably in the City f Lndn; technlgical change, ntably electrnic trading, has majr implicatins fr the gegraphy f FX trading Vilatins in cvered interest parity and the eur s rle as an internatinal financing currency Ambiguus effect f nn-standard mnetary plicy measures n rle f the eur as an internatinal financing currency: lwer cst f brrwing eurs ffset by higher csts f swapping eurs int dllars t hedge FX risk 9

10 Increasing cst f swapping eurs int dllars Swap basis structurally negative since 2008; sharp increase since early (basis pints) Eur Yen Sterling Surce: Blmberg. Ntes: Crss-currency swap (CCS) basis f majr currencies against the US dllar (three-mnth maturity). The CCS basis is quted frm the perspective f the US dllar-prviding cunterparty (wh receives the basis). 10 Increasing awareness f cunterparty risk Tighter limits t arbitrage (e.g. cstly balance sheet expansin, margin calls, etc.) Regulatin changes reducing USD liquidity supply in whlesale markets Lw interest rate envirnment pushing demand fr eur brrwing and FX hedging

11 Neutral impact f ECB s nn-standard measures A. Cst f brrwing eurs dwn (y-axis: percentages; x-axis: weeks) B. Cst f swapping eurs int dllars up (y-axis: percentages; x-axis: weeks) C. Impact n internatinal bnd issues in eur neutral (y-axis: USD mi; x-axis: weeks) Surces: Dedla et al. (2017), Haver, Dealgic and ECB staff estimates. Ntes: Impulse respnse functin f (A) 2-year interest rate differential (eur area-us), (B) 2-year CCS basis, and (C) eurdenminated internatinal bnd issuance t an exgenus shck in the ECB s balance sheet relative t the Federal Reserve balance sheet. Prir annuncements f nn-standard mnetary plicy measures are used as instruments t identify innvatins in central bank balance sheets due t liquidity supply shcks. The dynamic respnses f variables (A), (B) and (C) t liquidity supply shcks are estimated with lcal prjectin methds à la Jrdá (2005). 11

12 Special features The eur and the gegraphy f the freign exchange market Bulk f FX transactins in eurs initiated utside the eur area, ntably in the City f Lndn; technlgical change, ntably electrnic trading, has majr implicatins fr the gegraphy f FX trading Vilatins in cvered interest parity and the eur s rle as an internatinal financing currency Ambiguus effect f nn-standard mnetary plicy measures n rle f the eur as an internatinal financing currency: lwer cst f brrwing eurs ffset by higher csts f swapping eurs int dllars t hedge FX risk Unfficial eurisatin in CESEE cuntries Tentative signs that lcal currency use is prgressing in the cuntries cncerned, albeit slwly and largely restricted t lans and cash 12

13 Slight rebund in eur share f glbal FX reserves The share f the eur in glbal FX reserves rebunded slightly in (percentages, at cnstant end- exchange rates) Survey evidence pints t several cncerns fr reserve managers in 2017 (percentage f respndents) USD (right-hand scale) EUR (left-hand scale) fear f wrld recessin excessive 5% dllar strength 15% divergent mnetary plicies in majr centres 16% weakness/insta bility in the eurzne 34% fear f majr asset price crrectins 30% Surces: IMF and ECB calculatins. Ntes: Currency cmpsitin f glbal freign exchange reserves whse cmpsitin is disclsed. The latest data are fr the final quarter f. Surces: HSBC and Central Banking Publicatins. Nte: Prspective determinants f glbal reserve allcatins accrding t a central bank survey.. 13

14 Eur share up in glbal payments, dwn in FX turnver The share f the eur in glbal payments increased in (percentages) USD EUR GBP JPY CNY Other 40.0 The share f the eur in glbal freign exchange turnver declined in (percentages, in April f the crrespnding year shwn n the x-axis) 42.1 % 31.3 % 7.2 % % 29.4 % 8.4 % % 33.5 % 9.4 % % 40.2 % 8.6 % % 44.0 % 9.0 % Surce: SWIFT. Ntes: Currency cmpsitin f glbal payments. Inbund plus utbund traffic. Based n value. Surces: HSBC and Central Banking Publicatins. Ntes: Share f glbal OTC freign exchange transactins, n a net-net basis. 14.

15 Decline in eur share f internatinal debt securities The share f the eur in the stck f internatinal debt securities declined in (percentages) 70% 60% 50% 40% 30% 20% 10% EUR USD JPY Other 0% 99Q4 01Q4 03Q4 05Q4 07Q4 09Q4 11Q4 13Q4 15Q FX swap csts increased markedly since mid- hence discuraging use f eur as vehicle funding currency (basis pints) EUR JPY GBP Surces: BIS and ECB calculatins. Ntes: Currency cmpsitin f the stck f internatinal debt securities. The latest data are fr the final quarter f. 15 Surces: Blmberg and ECB calculatins. Ntes: Crss-currency swap basis f the eur against the US dllar at the five-year maturity. The latest data are fr 28 April

16 Decline in freign demand fr eur area bnds & cash Mixed develpments in freign demand fr eur area securities in (equities up, bnds dwn) (vlumes in EUR billins) Freign demand fr eur bankntes declined in (EUR billins; adjusted fr seasnal effect) mnthly shipments (left-hand scale) cumulative shipments (right-hand scale) Surces: ECB and ECB calculatins. Ntes: Balance-f-payments statistics. The latest bservatin is fr December. 16 Surce: Eursystem. Ntes: Net mnthly shipments f eur bankntes t destinatins utside the eur area. The latest bservatin is fr February 2017.

17 De-eurizatin in Central, East & Sutheast Eurpe? Signs f de-eurizatin in sme cuntries n lending side (percentages) Prgress n depsit side mre limited (percentages) Freign currency Eur Freign currency Eur Albania Bsnia and Herzegvina FYR Macednia Serbia Turkey Albania Bsnia and Herzegvina FYR Macednia Serbia Turkey Surces: Haver Analytics, natinal central banks and ECB staff calculatins. Ntes: Share f freign currency lans (utright r indexed) in ttal lans. 17 Surces: Haver Analytics, natinal central banks and ECB staff calculatins. Ntes: Share f freign currency depsits (utright r indexed) in ttal depsits.