National & World News

Jul 16, 9:46 AM EDT

Euro healing, but still distant No. 2 to US dollar


AP Photo
AP Photo/Michael Probst
World Video

Buy AP Photo Reprints
Multimedia
A district summary of the Beige Book
Measuring economic stress by county nationwide
Mall malaise: shoppers browse, but don't buy
Unemployment by the numbers
Family struggles with father's unemployment
Saying an affordable goodbye
Hard times hit small car dealer
Latest Economic News
US stocks climb as earnings reports roll in

Stocks move higher; Comcast, Lockheed gain

Stocks open higher; Comcast, Lockheed gain

How the Dow Jones industrial average fared Monday

Six Flags and Hasbro are big market movers

Weak earnings, Ukraine tensions weigh on stocks

US companies report rising sales, employment in 2Q

Study says national parks boost economy in West

Puerto Rico power company's finances spark concern

Turkey cuts rates again as volatility eases

Interactives
Greece's Debt Threatens to Spread
State budget
gaps map
Auto industry problems trickle down, punish Tennessee county
Women give old Derby hats a makeover in tough economy
S.C. town deals with highest unemployment in South
How mortgages were bundled and sold as securities
Tracking the $700 billion financial bailout
Tracking the year's job losses
State-by-state foreclosures since 2007
Credit crisis explained
Presidents and their economic legacies
Lexicon of the financial crisis
Americans' addiction to debt

FRANKFURT, Germany (AP) -- International investors are regaining their appetite for euros as the shared currency recovers from a debt crisis that threatened to break it up.

But the euro, which is shared by 18 countries, fell further behind the U.S. dollar last year in another key measure of importance and prestige: its use as a reserve currency by the world's central banks.

The European Central Bank said Wednesday that foreign demand for stocks, bonds and other portfolio investments in euros rose to 3.7 percent of eurozone economic output in 2013. That was up from 3.0 percent the year before.

Benoit Coeure, a member of the bank's six-member executive board, said investors were responding to the easing of the crisis and showing "full confidence that the euro will stay."

Yet other indicators on the euro's global use remained mixed. In particular, the currency's share of global central bank reserves slipped to 24.4 percent from 25.3 percent. The U.S. dollar remains on top, with 61.2 percent. Central banks build up reserves to cushion their economies against possible turbulence and can use them to prop up their own currency's exchange rate if it comes under pressure.

Presenting the bank's annual report on international use of its currency, Coeure said one reason for that is that conservative central bank officials may move more slowly than private investors to adjust their holdings. Another factor could be a long-term diversification in which banks add more currencies from emerging economies such as China, reflecting their increasing weight in the global economy. He stressed that the ECB did not encourage or discourage the euro's use for international trade or reserves, leaving that to markets.

"We don't have a policy view here," he said.

Still, the international use of a currency can bestow concrete advantages. The dollar's role as the No. 1 reserve currency creates continuing demand for dollar-denominated securities such as U.S. Treasurys. One result is very low borrowing costs for the U.S. government. The dollar's role as a reserve currency also supports the dollar's exchange rate, helping the U.S. to run large trade and budget deficits without seeing its currency fall sharply in value.

Other indicators were mixed. The euro's share of international bond market borrowing and foreign exchange trading fell slightly, while its use in paying for exports and imports to and from non-eurozone countries rose slightly.

The stronger demand for portfolio investment in euros shows recovering confidence but in the short run it can be a headache, since it increases the euro's exchange rate. A stronger euro can hurt exporters and plays a role in inflation being lower than the ECB would like by making imports cheaper.

Fears over a breakup of the euro eased after ECB head Mario Draghi said in July 2012 that the bank would do "whatever it takes" to save the euro and then offered to buy unlimited amounts of government bonds if needed.

© 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Learn more about our Privacy Policy and Terms of Use.

 

HamptonRoads.com

PilotOnline.com