EU Strengthens As A Hub For Green Finance: 45.4% Of 2019 ‘Green’ Bond Issues Globally Were Denominated In Euros

The ECB thinks that the European financial system could withstand even lower ratesThe euro is already the main denomination currency for green bonds

In 2019, the euro consolidated its role as the second most widely used currency in the world. That said, it was at a considerable distance from the dollar, which retains its hegemony as the global reserve currency. The exception was in the area of green bond issues, where euro-denominated issues once again led the market.

Specifically, according to data provided by the European Central Bank (ECB), in the last year 45.4% of ‘green’ bond issues worldwide were denominated in euros, compared to 25.7% in dollars and 28.9% in other currencies.

With regard to this point, the ECB flags that although EU residents are the largest issuers of green bonds in the world, with more of the issues of this type made in 2019, this factor is not the only explanation for the euro’s leadership in this segment. Euro-denominated bond issuance is also significant among non-euro area issuers, accounting for about 30% of euro-denominated green debt, “suggesting that the euro is also attractive to foreign issuers.”

The ECB’s data also confirm the euro’s leadership in terms of the relative importance of ‘green’ bonds compared to other bonds. The share of ‘green’ against total euro-denominated bond issuance increased to almost 9% by end-2019, while dollar bonds accounted for 2.1% and other currencies for around 2.5%.

The euro is already the main denomination currency for green bonds. So the consolidation of the EU’s role as a global hub for green finance could strengthen the euro as the currency of choice for sustainable financial products, thus enhancing its international role, the ECB argues.

On the other hand, the euro’s position as the second most used currency in the world was reinforced by representing 20.5% of countries’ foreign currency reserves, 2% higher than in 2018. It was also well above the minimum of 19.2% in 2016, while still below the 22.9% record weighting reached in 2010.

The dollar’s share in international foreign exchange reserves stood at 60.9% at end-2019, compared with 61.8% in 2018, while the pound maintained a 4.6% share.

As for the euro’s role in international lending, in 2019 it accounted for 25.2% of the total, slightly lower than the 25.5% recorded in 2018 and far off the dollar’s 54.4% weighting. At end-2019 the euro accounted for 25.8% of deposits, compared to 26.9% in 2018, while the dollar accounted for 54.5%, one percentage point more than the previous year.

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.