The Euro, a declining international currency

If the dollar has been struggling lately, the euro is not faring much better. The introduction of the report written by the ECB president ends with a cautionary note.

The Euro, a declining international currency. If the dollar has been struggling lately, the euro is not faring much better. The introduction of the report written by the ECB president ends with a cautionary note.

“Some countries are increasingly seeking to bypass the main invoicing currencies for international trade and traditional cross-border payment systems (SWIFT). The accumulation of gold as a reserve asset has continued, particularly in countries closely linked to Russia, as well as in non-standard reserve currencies. Overall, this suggests that the international currency status of the euro should not be taken for granted.”

According to the report, the single currency accounts for 20% of global foreign exchange reserves, down 0.5% year-over-year. Given that global reserves amount to $11,450 billion.

Let us recall in passing that Europe has frozen €250 billion owned by Russia, without which the euro’s share drops to 17.7%…

The dollar’s share is 58.4%. However, this figure is misleading as it is inflated by the dollar appreciation. The IMF recently provided a figure of 55% at constant exchange rates.

The yen’s share reaches 5.7%, while the Chinese yuan (2.3%) remains tiny compared to the economic weight of the Asian giant.

The ECB warns that geopolitical risk plays an increasingly important role in the management of foreign exchange reserves. In this regard, it highlights a recent HSBC survey of 91 central banks representing 65% of global reserves. It shows that “geopolitical escalation” is the most important factor affecting reserves composition.

And gold?

The ECB also highlights in its report a survey published by the Official Monetary and Financial Institutions Forum in June 2023, indicating that nearly 40% of central banks plan to increase their yuan reserves over the next ten years.

However, it is gold that currently has the wind in its sails. Purchases are at an all-time high. The yellow metal now represents nearly 20% of total foreign exchange reserves. Central banks bought more than 1,000 tons of gold in 2023.

China was the largest buyer (225 tons). The Sino-Russian tango strategy is clearly to restore the Gold Standard, or at least solidify their currencies to do without the greenback.

For example, over 80% of bilateral trade between Iran and Russia was settled in national currency, according to the Russian Deputy Prime Minister. According to Russian sources, 20 countries have joined its Financial Messaging System (SPFS), the local alternative to the SWIFT network developed by the Russian Central Bank.

The yuan, however, appears to be the first choice. The ECB notes that India failed to sustainably settle its imports from Russia in rupees. “By mid-2023, major Indian refineries had begun using the yuan to pay for Russian crude oil imports”, the report states.

When will bitcoin be in reserve?

Bitcoin is already a reserve currency for small countries like El Salvador and Bhutan. For example, El Salvador holds over 5,000 bitcoins.

Additionally, some countries hold significant amounts due to seizures. It is estimated that 565,000 bitcoins are held by various countries such as the United States, China, Bulgaria, etc. This amounts to $40 billion. That is 0.34% of global foreign exchange reserves.

We could also dare to say that all bitcoins are foreign exchange reserves. Indeed, a country’s reserves are used when its citizens purchase something abroad. From this perspective, bitcoin is a reserve currency in potential. With a capitalization equivalent to $1,250 billion, bitcoin represents 10% of global foreign exchange reserves!

Bitcoin is also a payment network performing massive transfers. Bitcoin transactions amounted to approximately 1,000 billion dollars in 2023. To compare, Visa and Mastercard process $9,000 billion per year.

Bitcoin has formidable advantages to stand out in the face of payment systems fragmentation. Stateless, uncensorable, and an absolute store of value, it is poised to become the international reference currency.

Don’t miss our article: India Launches Globalization of the Rupee.

Maximize your Cointribune experience with our 'Read to Earn' program! Earn points for each article you read and gain access to exclusive rewards. Sign up now and start accruing benefits.

Bitcoin, geopolitical, economic and energy journalist