Central banks cut their euro holdings by the most on record last year in anticipation of losses tied to unprecedented stimulus.
The euro now accounts for just 22% of worldwide reserves, down from 28% before the region’s debt crisis five years ago, while dollar and yen holdings have both climbed, the latest data from the IMF show.
“As a reserve currency, the euro is falling apart,” said Daniel Fermon, a strategist at Societe Generale in Paris. “As long as you have full quantitative easing, there’s no need to invest. The problem for the moment is we don’t see a floor for the currency. Money’s flowing out,” he said.
European Central Bank president Mario Draghi has in the past welcomed the drop-off in reserve managers’ holdings because a weaker exchange rate makes the continent more competitive. Yet firms including Mizuho Bank warn the currency’s waning popularity reflects a more lasting loss of confidence in an economy that shrank in two of the past three years.
The decline in euro reserves suggests other central banks consider the ECB’s €1.1tn of quantitative easing bond purchases, which started a month ago, to be the biggest threat to the currency’s global status since its 1999 debut.