ECB: Euro's global role could grow as Europe stabilises

The euro gained ground as a reserve currency in 2016 after years of decline, the European Central Bank said Wednesday, suggesting that receding political uncertainty in the eurozone could boost the trend.

The euro's share of foreign currency reserves worldwide inched up 0.3 point to 19.7 percent in the fourth quarter, according to an annual ECB report.

"Instability seems to be receding in the eyes of market participants," ECB board member Benoit Coeure told journalists in Frankfurt. 

"That might bode well looking forward for the role of the euro as a reserve currency."

By comparison, the US dollar accounted for some 64 percent of foreign currency reserves worldwide, a drop of more than 6.0 percentage points from the 2007 level, while China's renminbi stood at 1.1 percent.

A 2017 survey of foreign reserves managers highlighted by the central bank found that one in three were concerned about political instability in Europe.

But the failure of anti-European Union and anti-euro parties to take power in French and Dutch elections this year could see those fears dwindle, Coeure suggested.

"Given what we hear from investors, they perceive political uncertainty in the eurozone to be less," he said, suggesting that "we could see a rebound in the role of the euro" in future.

The euro remained the second most-used currency worldwide on a range of measures, with its share of international payments for goods and services growing almost 2.0 points to 31.3 percent.

Some 42 percent of international payments were in dollars and 1.7 percent used renminbi.

Most other measures saw the euro used less, notably on international debt markets, where the share of both outstanding and newly-issued debt denominated in euros fell.

Its share of new foreign-currency-denominated debt dropped 4.4 points to 20.4 percent by the end of 2016.

The ECB insists that it does not aim to increase international use of the euro, as its mandate empowers it only to work for price stability -- or a steady rate of inflation just below 2.0 percent.

Nevertheless, Coeure acknowledged that "the single currency is an instrument for Europe to play a role on the global stage... it's only normal that European leaders would see it that way."