Euro fails to dominate in wake of crisis

The financial crisis has had little effect either way on the international role of the euro and it is a long way from snapping at the heels of the US dollar's dominance.

Despite the "flight to safety" towards the US dollar during the height of the crisis in 2008, the euro also gained some market share by such measures as the proportion of official foreign exchange reserves held in euros, the proportion of international debt securities denominated in euros and its use in invoicing and settlement of international trade (excluding trade within the euro area).

Its share of central banks' foreign reserves rose to 26.5 per cent by the end of 2008 from 25.3 per cent a year earlier.

But these figures cover only about two-thirds of official reserves. Some countries, including China, do not disclose the currency breakdown of their reserves.

But market sources believe they are not greatly different from their transparent counterparts: about two-thirds US dollars and a quarter euros.

The euro's share of cross-border loans increased 1.5 percentage points last year to 22.2 per cent.

Much of the international use of the euro is concentrated among the newer member states of the European Union which are not yet in the euro area but which are required to prepare to join it. That involves bringing their inflation rates and government deficits and debt levels into line.

The euro has appreciated this year as the US dollar has weakened, but not to anything like as much as the commodity currencies, including the kiwi.