The international importance of a currency is reflected not only in its use as a reserve or anchor currency, but also in its role as an invoicing currency in trade across national borders. “The euro, the world’s second most important currency, is in a favourable starting position, according to the current issue of the Monthly Report. The authors add, however, that there is still potential for expanding the euro’s role as an invoicing currency.

ECB President Christine Lagarde formulated the objective of making the euro a full international currency, with all the benefits that entails. Strengthening the international role of the euro could reduce the euro area’s vulnerability to external economic factors and make it less expensive for euro area governments and firms to borrow money.

Majority of Germany’s goods exports invoiced in euro

At present, around 75 % of German goods exports are invoiced in euro, with exports to countries outside the EU accounting for just under 60 %. All in all, EU countries invoice around half of their goods exports to other EU countries in euro. By comparison, the United States invoiced virtually all of its exports in US dollars, while Japan uses the US dollar more frequently than its own currency. Switzerland, however, uses US dollars, euro and Swiss francs in equal measure as an invoicing currency.

Interestingly, the US dollar’s role as a vehicle currency for German exporters is comparatively insignificant. Whilst around 30 % of global are invoiced in US dollars as a vehicle currency, this share is only around 6 % for German exports. According to the authors of the study, this suggests that the euro is being relatively widely accepted, especially in third countries. 

Possible reasons for invoicing in a foreign currency

The euro’s limited appeal among foreign buyers could be one reason why some European firms do not invoice their goods exports in euro. The report notes that [b]uyers and buyer countries may prefer their own currency or the US dollar, as they can avoid foreign exchange market transactions and hedging costs [and] reduce transaction costs. Another reason could be that some firms have pinned their hopes on a “pricing-to-market” strategy in which they invoice their goods in the destination market’s currency in order to hedge retail prices against exchange rate fluctuations. 

Opportunities for and challenges facing the euro

The ECB and the Eurosystem are actively striving to strengthen the euro’s international role. The international role of the euro as invoicing currency could be substantially expanded if the euro increased in importance as an international reference and vehicle currency, the report’s authors write. They add that the euro is in a favourable position to strengthen its position. The euro area has a strong economy, it has intense global trade and financial ties, and the ECB has a credible mandate to maintain price stabilty; all these factors provide a sound basis. “However, pronounced network effects in international trade, an established payment infrastructure denominated in US dollars and the historical persistence of dominant key currencies documented above make rapid progress more difficult”, the experts conclude.