A new report by the European Central Bank (ECB) indicates that the euro's status as a reserve currency is at risk following a slight decline in its share of foreign exchange holdings in 2023. The report warns that this share could decrease further as Russia, advocating for an alternative reserve currency, reduces its euro reserves.

Highlighting the ECB's concerns, the report revealed that the euro's share of global reserves dropped by one percentage point to 20%, a level last seen in 2020. In contrast, the U.S. dollar's share increased by 0.3% to 58.4%, and the Japanese yen's share rose by 0.6% to 5.7%.

The report also noted an increasing diversification of global reserve portfolios into nontraditional currencies, including the Australian dollar, Canadian dollar, Korean won, Singapore dollar, Swedish krona, and Norwegian krone.

Chinese Renminbi Emerges as an Alternative Regional Reserve Currency

Regarding global payments, the ECB report stated that the euro's role remained stable, with no significant changes in the value of euro payments processed within the eurozone's real-time gross settlement (RTGS) system.

“This indicates that the global reach of euro payments remained stable, unlike the euro's share in global payments processed through Swift – a global messaging network for financial institutions – which saw a notable decline in 2023,” the ECB stated.

The report also noted that while Russia has been promoting the ruble as a primary regional payment currency, the Chinese renminbi has more effectively assumed this role. For instance, India has opted to use the renminbi, rather than the rupee, to pay for Russian crude oil.

Additionally, the report discusses the potential role of crypto assets in global payments and the efforts of certain countries to establish crypto-based payment systems.