Benoît Coeuré: The international dimension of the ECB's asset purchase
programme
Speech by Mr Benoît Coeuré, Member of the Executive Board of the European Central Bank,
at the Foreign Exchange Contact Group meeting, Frankfurt am Main, 11 July 2017.
* * *
Large-scale asset purchase programmes have become an integral part of the set of
unconventional tools central banks use to achieve their domestic objectives.[1]
When faced with negative output gaps and policy interest rates approaching their effective
lower bound, these programmes have given central banks an essential tool to continue
providing additional monetary accommodation, and prevent their domestic economies from
falling into a deflationary trap.
Yet, in a world of integrated financial markets, purchase programmes do not only have
domestic effects. This has been recognised by policymakers in the past. For example, there
has been a lively debate about the effects of the Federal Reserve's purchase programmes on
financing conditions in emerging market economies.[2] However, less attention has been paid
to this aspect in the case of the euro area - that is, the international spillovers of the ECB's
asset purchase programme (APP).
This is what I would like to discuss in my remarks today. Specifically, I plan to cover two topics.
First, I will review what we know about the APP's effect on net capital flows out of the euro
area. And second, I will look at whether these capital flows have depressed exchange rates
and, as a result, diverted demand away from other economies.
My main message is that the ECB's APP does appear to have triggered substantial capital
flows across borders. But it is far from clear whether this explains the depreciation in the
effective exchange rate of the euro. In fact, asset purchases affect the exchange rate in broadly
the same way as conventional monetary policy -through expectations of interest rate
differentials.
Moreover, while unconventional monetary policies may drive down exchange rates, it does not
make them a zero-sum game. The evidence suggests that the demand-boosting effects
dominate - that is, the spillovers from our unconventional monetary policies have boosted
growth and inflation prospects, not only in the euro area but also globally.
Post-APP international capital flows
Let's start, then, by trying to get a sense of how strong international capital flows have been
since we began our large-scale asset purchases. In other words, to what extent has there been
a rebalancing towards foreign assets? Here some stylised facts from the euro area balance of
payments data are instructive.
On slide 1 you can see that capital flows have indeed been considerable in the past few years.
At their peak around the middle of 2016, net capital outflows - measured here in terms of
12-month moving sums - reached nearly 5% of euro area GDP. Never before in the history of
the euro area have capital flows been so high.
Of course, in the absence of a counterfactual, we do not know how much of this is actually the
result of our monetary policy measures. After all, investment decisions reflect a number of
factors, including risk perceptions and, importantly, the yield that investors can earn abroad.
Often, capital flows also simply reflect new investments and savings - just think about the euro
area's growing current account surplus - or they can be distorted by tax and regulatory
arbitrage.
Yet, it is striking to see that the turnaround in capital flows from net inflows to net outflows
started in mid-2014, just when we had announced our credit easing package and when
expectations were gradually building among market participants that we would also begin
purchasing government bonds.
Slide 1 also tells a second story - that among the various investment opportunities available
to investors, virtually all net capital outflows have been concentrated in purchases of foreign
long-term debt securities. Equity investment, by contrast, has hardly changed in net terms over
time.
At face value, this suggests one tentative conclusion: large-scale purchases of sovereign
bonds encouraged some investors to rebalance their portfolios towards the closest substitute
- bonds issued by other sovereigns. This could be described as textbook quantitative easing
(QE)[3], not least because these flows likely reflect the impact of our measures on bond prices
in the euro area. According to ECB estimates, our monetary policy measures have contributed
to reducing euro-area long-term risk-free rates by around 80 basis points since June 2014.[4]
As a result, spreads over bonds issued by non-euro area sovereigns have increased notably.
For example, towards the end of last year the spread between ten-year US Treasuries and
equivalent German Bunds hit levels above 200 basis points - its highest level since the fall of
the Berlin Wall. On average last year, the spread was around 60 basis points higher than
during the six months leading up to the launch of our credit easing package. And the observed
spread already reflects the likely impact that increased purchases of foreign bonds has had on
their prices. In other words, while our measures can be expected to have contributed to a
widening of spreads, foreign rebalancing is likely to have caused the spreads to narrow. The
net effect is what we see reflected in prices today.
ECB internal model analysis confirms that yield spreads are an important driver of international
portfolio flows.[5]
On slide 2 you can see that yield differentials between euro area government bonds and those
issued by non-euro area governments of advanced economies can explain a significant part
of net debt outflows over the course of last year. Risk aversion can explain much of the
remainder.
Now, net outflows in debt securities can mean two things: either euro area investors
increasingly moved domestic funds abroad, or foreign investors - those resident outside the
euro area - have sold euro area bonds. Both mechanisms are part of the type of portfolio
rebalancing that policymakers typically have in mind when thinking about asset purchases. In
practice, they can reinforce each other and this is what we have been seeing in the euro area.
Consider slide 3. Here you can see that euro area investors have been a major driving force
behind the net outflows. In fact, since the start of the APP in March 2015, net purchases by
domestic investors have been almost entirely in the form of long-term foreign fixed income
securities. There have been anticipation effects, but the chart strongly suggests that net debt
outflows accelerated as the APP continued and decelerated only when we decided to reduce
the pace of our monthly purchases in December last year.
Although it is unclear to what extent these flows ultimately influence bond prices, the pattern
of international capital flows at least encourages discussion about the stock versus flow effects
of central bank asset purchases - an interesting angle that should be explored further in future
research.
On slide 4 you can see that euro area investors did not only choose to rebalance into the
closest substitute, namely government bonds, but also predominately into the safest of the
issuers. Around two-thirds of net outflows went into securities issued by issuers in the United
States, United Kingdom, Japan, Sweden and Canada. By contrast, and contrary to what has
often been discussed in the wake of the Federal Reserve's asset purchase programmes, there
was hardly any investment into emerging market economies, including the BRICs - Brazil,
Russia, India and China.
So euro area investors deliberately chose to redirect some of their funds into the closest
substitute. Slide 5 shows the extent of this rebalancing more clearly. Since the start of the APP,
euro area investors alone accounted for more than half of foreign purchases of US debt
securities. History suggests that these shares are unusual for the euro area.
The other side of the coin is the behaviour of non-euro area investors. You can see this on
slide 6. In net terms, foreign investors have been neither large sellers nor large buyers of euro
area assets in recent months - the solid blue line is close to balance.
But this masks a significant difference between asset classes: foreign investors have been
large buyers of euro area equity, while they were actively selling euro area bonds throughout
most of last year, thereby reinforcing the actions of domestic investors.
Broadly speaking, this means two things: first, our policy measures have boosted confidence
in the euro area's growth prospects, which has brought foreign investors back to euro area
stock markets. This confidence effect has also been confirmed in empirical studies.[6]
You can see clearly on slide 6 that this trend essentially started after the announcement of the
outright monetary transaction (OMT) programme in mid-2012 and that inflows accelerated
further in the aftermath of our credit easing package of June 2014. By the end of 2014, shortly
before we announced purchases of government bonds, annual inflows into euro area stock
markets by non-residents had reached 4% of euro area GDP - the highest on record. Policy
stimulus and measures to repair the bank lending channel were clearly seen as having a
positive effect overall on the euro area economy.
The second thing to note is that some selling of euro area bonds by non-residents is a
mechanical feature of the ECB's asset purchase programme. What I mean by that is that
foreign investors are holding a relatively large share of outstanding euro area government
bonds. For example, when we started the APP in March 2015, non-euro area investors were
holding nearly 75% of German Bunds with maturities of seven to ten years. So it should not
come as a surprise that around 45% of our purchases of government bonds have been with
investors resident outside the euro area.[7] And if these foreign investors decide not to reinvest
the proceeds from the sale in the euro area, a net outflow is recorded.[8]
This feature makes the ECB's asset purchase programme structurally different from its
counterpart in Japan, for example, where at the start of the Bank of Japan's quantitative and
qualitative monetary easing (QQE) in April 2013 less than 10% of outstanding Japanese
government bonds (JGBs) were held by foreign investors. As a result, it is mainly domestic
investors that have significantly reduced their JGB holdings in response to QQE.
And as you can see on slide 7, they did not rebalance their portfolios towards foreign bonds:
in the first two years after the start of QQE there were hardly any net outflows in debt securities
despite a massive widening in international spreads following the US "taper tantrum" in
mid2013. Instead, QQE initially led to strong inflows into Japanese equities - a confidence effect
similar to the one I have just described for the euro area. However, these inflows reversed
relatively quickly.[9]
In the United States, by contrast, the holding structure of the Treasury market is more similar
to that of the euro area bond market, but actual purchase patterns are notably different.
Specifically, although non-residents owned around 60% of marketable US Treasuries in 2008,
empirical evidence suggests that they were not the ones selling directly and indirectly to the
Federal Reserve under its various rounds of QE.[10] You can see this on slide 8. In fact,
perhaps with the exception of the first round ("QE-1"), foreign investors continued to pile into
US Treasuries, in particular after the third round ("QE-3").
This is not to say that quantitative easing by the Federal Reserve did not boost international
capital flows. In fact, numerous studies, albeit mostly reliant on event studies over short periods
of time, tend to suggest that it triggered sizeable flows into emerging markets, in particular after
QE-2.[11] Yet, net portfolio flows, as you can see on slide 8, paint a broadly different picture
of post-QE portfolio rebalancing than that seen in the euro area.
I see three main factors that can explain the difference in post-QE debt flows in the United
States and the euro area.
First, the yield differential: ten-year US Treasuries and equivalent German Bunds were
generating, on average, broadly the same return, in local currency, during the Fed's QE
programmes from late 2008 to early 2013. But, as I hinted at before, yield differentials were
quite different in recent times. Since the start of the APP in March 2015, ten-year US
Treasuries have been yielding, on average, around 170 basis points more than ten-year Bunds
- an enormous difference that, to a large extent, reflects the divergence in monetary policy
cycles that emerged in the wake of the euro area's sovereign debt crisis. As a result, portfolio
rebalancing during the ECB's asset purchase programme has been more attractive for
investors than it was during the Fed's QE programmes.
The second factor is negative rates. In addition to yield differentials, the absolute yield level
may also matter for investors, particularly if rates are negative. It may be no coincidence that
net bond outflows were among the largest when ten-year German Bund yields hit a low of
nearly -20 basis points last summer. In a recent survey among foreign central banks, 70% of
the respondents reported that negative interest rates in the euro area had encouraged them
to adjust their allocations to the euro.[12]
This emphasises the strong amplifier effect of negative rates - they are highly effective in
boosting portfolio rebalancing effects, both domestically and across borders, exactly when
monetary accommodation might be needed the most.
And third, we have political uncertainty and the role of the US dollar in the international financial
system. The US dollar is the main reserve currency and US Treasuries are the world's most
important safe haven asset, and as such benefit from a liquidity advantage. Hence, in periods
of elevated uncertainty, such as after Brexit, investors may overweight US Treasuries and
underweight European assets. So, rebalancing out of US Treasuries is always likely to be more
limited than out of any other safe security.
At this point I would like to draw three preliminary conclusions.
One is that unconventional policy measures can significantly boost confidence, leading foreign
investors to review their international portfolio allocations, in particular with regard to equity.
A second conclusion is that the extent to which investors rebalance their portfolios towards
foreign bonds is likely to depend on the structure of local bond markets, in particular the holding
composition, and the risk-adjusted return investors can expect to receive from switching
domestic and foreign bonds.
This means that there can also be noticeable differences between euro area countries, as can
clearly be seen when looking at the recent behaviour of Japanese investors. Slide 9 shows
that Japanese investors accumulated large positions in French securities in the aftermath of
the launch of the APP, while at the same time selling German Bunds - a rebalancing within
the currency union that likely reflected yield and safety considerations.[13]
And a third conclusion, more specific to the euro area, is that any future decline in the pace of
our asset purchases is unlikely to have much direct negative impact on emerging markets,
given that flows have been very limited.
Capital flows and exchange rates
So, the evidence is fairly clear that asset purchase programmes are associated with net capital
flows, and probably also with changes in relative asset prices. This brings me to the second
part of my remarks: the cross-border effect of asset purchases on exchange rates.
Two questions stand out. Do large-scale asset purchase programmes lead to exchange rate
depreciation in the initiating country? And, if so, does monetary easing produce a
beggar-thyneighbour effect for other economies?
The first point to note is that, during announcements of asset purchase programmes, the
currencies of all major central banks have indeed tended to depreciate. You can see this on
slide 10, which shows, for all countries, the cumulative short-term impact of selected major
announcements of asset purchase programmes and negative rates, or both.
Of course, exchange rates often change before actual announcements in anticipation of policy
actions. In the case of the euro area, for example, studies of a larger number of events that
include such prior signals and comments by policymakers find that the APP may have led to a
depreciation of the euro of up to 12% against the US dollar.[14]
What is more, ECB in-house research suggests that negative rates not only amplify portfolio
flows, they also amplify exchange rate movements. ECB staff estimate that the reduction in
the deposit facility rate from 0% to -0.2% in the second half of 2014 led, cumulatively, to a
1.9% depreciation of the euro against the US dollar, of which 0.5 percentage points were due
to the non-linear effects of interest rates moving into negative territory.
These non-linear effects could be related to the amplification of the carry trade channel, where
currencies with negative funding costs may become the preferred short leg for carry trade
strategies.[15] Negative rates can therefore amplify the initial volatility-supressing effect of
asset purchases on carry trades. The lower the rates, the stronger these effects can be
expected to be. This applies not only to the euro area but, as you can see on slide 10, also to
Japan.
It is tempting to think that currency movements related to asset purchase programmes are a
direct consequence of their impact on the supply of and demand for currency when investors
rebalance their portfolios across borders. The truth, however, is that the direction of causality
is much less clear in practice. Indeed, a recent Deutsche Bundesbank study finds that actual
purchases under the APP have not led to statistically significant euro exchange rate
movements.[16]
I see two main reasons for this.
First, since exchange rates are asset prices that react in real time, they incorporate
forwardlooking expectations - most importantly expectations about short-term interest rate
differentials. For instance, as you can see on slide 11, since the launch of the APP, the
EUR/USD exchange rate has often closely mirrored two-year interest rate differentials between
Germany and the United States.[17] Capital flows, by contrast, have tended to respond to
interest rate differentials with a delay.
In other words, rather than driving exchange rate depreciation, capital flows typically take place
after this depreciation has already happened. One reason for this delayed response may be
that, during asset purchase announcements, asset managers achieve an immediate change
in portfolio weights without active sales or purchases via "passive" rebalancing - that is, the
change in the exchange rate and asset prices.[18]
This disconnect between the exchange rate and capital flows is consistent with the empirical
finding that the exchange rate is mostly affected by the signalling channel of monetary policy
- that is how policy decisions affect the expected future path of short-term interest rates. ECB
research finds that the depreciation of the euro exchange rate in response to the APP
announcement in January 2015 occurred mainly through this signalling channel, including the
added credibility asset purchases provide to that expected path.[19] The portfolio rebalancing
channel, by contrast, played much less of a role.[20] In this sense, the effect of asset purchases
on exchange rates is not fundamentally different from conventional interest rate policy.
The second reason to be sceptical about capital flows affecting the exchange rate is linked
more to the structure of foreign exchange markets. For example, a large share of euro foreign
exchange transactions - 84% - is initiated outside the euro area, notably in the City of
London.[21]
As a result, they do not necessarily give rise to capital flows that affect the euro area. They
are undertaken offshore.[22] The fact that foreign exchange trading in euro is so active in
financial centres outside the euro area helps explain why there is often little correlation
between cross-border capital flows and the euro's exchange rate in the short to medium term.
In addition, portfolio outflows from the euro area - although large in size relative to economic
activity - remain very small relative to overall transactions in euros in the foreign exchange
market. They account at most for 0.2% of daily transactions in the euro-dollar pair, for
instance.[23] And to the extent that such investments are hedged, the link between capital
flows and exchange rate becomes even more tenuous.
Exchange rate spillovers and currency wars
Still, even if other effects of unconventional monetary policy, rather than capital flows, are the
main influence on the euro exchange rate, the question of economic spillovers remains. This
brings us to the "currency war" criticism of monetary policy.[24]
Those taking this line argue that currency depreciation caused by unconventional policy easing
can divert domestic expenditure away from foreign imports, thus creating a zero-sum game.
Clearly such arguments need qualifying.
One way to do so is to use NiGEM, a well-known global macroeconomic model with an
articulated external sector and international trade and financial linkages. Given the difficulties
of capturing large-scale asset purchases in this model, policy easing at the lower bound is
proxied by central banks imposing negative interest rates.
What you can see on slide 12 are two things. Scenario 1 portrays the impact of a multilateral,
simultaneous cut in policy rates by the G-3 central banks, bringing rates into negative territory
in all jurisdictions, including in the US. Scenario 2 involves a deepening of negative rates in
the euro area only.
The scenarios illustrate two things.
First, the exchange rate channel is less important than most observers believe. Look at how
similar the response of economic activity in the euro area is under the two scenarios, even
though the exchange rate depreciation is less than half under the multilateral case. Clearly,
the expansionary effect of monetary policy easing is the dominant factor - in practice probably
even more so as evidence is growing that the exchange rate pass-through to final consumer
prices has steadily fallen in recent years.[25]
Second, unilateral policy actions are not a zero-sum game. Scenario 2 demonstrates that,
although the currencies of our trading partners appreciate, a unilateral cut in the euro area
interest rate is a net positive for all countries individually, and for the global economy as a
whole. That is, if unconventional monetary policy helps prevent a country stuck at the lower
bound from being a drag on global demand, all countries can benefit. This has also been well
documented in the academic literature.[26]
In the case of the euro area, the demand-augmenting effects are clearly visible. For example,
since we introduced our credit easing package in mid-2014, net exports have hardly
contributed to GDP growth. The recovery has been driven almost entirely by domestic demand,
supported by a virtuous circle between rising employment, labour income and consumption.
Certainly, if we abstract for a moment from the fact that mark-up adjustments could have taken
place, the fall in the euro exchange rate may have helped exporters hold onto their market
shares as world trade stalled. But by far the most dominant effect of our monetary policy has
been to encourage these domestic growth forces.
In other words, far from "beggaring its neighbours", monetary policy easing by the ECB has
added to global demand and thereby stabilised the global economy, in particular after the euro
area had been a major drag on global growth for many years. In the last three years the euro
area's share of global growth has become much more significant, contributing 0.5 percentage
points, on average, to the 1.9% growth in advanced economies.
Moreover, we also responded to a number of significant common, global shocks, such as the
protracted period of low oil prices and the slowdown in growth in emerging market economies,
which threatened not only the achievement of our price stability objective, but also that of many
other central banks. So, the combined effects of stabilising the euro area economy - a
significant source of demand for many countries - and cushioning global shocks contributed
to putting global growth back on it current path.
Conclusion
Let me conclude.
Asset purchase programmes have been instrumental in easing monetary policy at the effective
lower bound in major advanced economies. A wealth of evidence suggests that these policies
have successfully boosted economic growth and inflation prospects. At the same time, they
have clearly had spillover effects on other countries via capital flows and relative asset price
movements.
The evidence does not suggest, however, that these capital flows have led to major exchange
rate movements. Rather, exchange rates have responded to forward-looking interest rate
differentials. Asset purchase programmes, together with negative interest rates, may have
exacerbated those differentials through signalling and non-linear effects, but their effect on
exchange rates is, by and large, not fundamentally different from conventional policy.
What is more, currency depreciation is a side-effect of policy and neither its main transmission
channel, nor its objective. Monetary policy actions aimed at supporting domestic price stability
objectives in advanced economies have been clearly positive for the global economy, mainly
by stimulating employment, incomes and, ultimately, economic growth.
This is particularly the case in the euro area, which, thanks to a rich set of carefully calibrated
monetary policy measures, is now adding to, rather than subtracting from, global growth. In
this sense, the view that asset purchase programmes in large advanced economies have
encouraged harmful currency wars is misleading. The world of monetary policy is not an arena
where central banks engage and compete for advantage.
Thank you for your attention.
Endonotes
[1] I would like to thank Roland Beck, Arnaud Mehl and Martin Schmitz for their contributions
to this speech. I remain solely responsible for the opinions contained herein.
[2] See, for example, Rajan, R. (2014), "Competitive monetary easing: is it yesterday once
more?", remarks at the Brookings Institution, Washington, DC, April 10; and Bernanke, B. S.
(2015), "Federal Reserve Policy in an International Context", paper presented at the 16th
Jacques Polak Annual Research Conference hosted by the International Monetary Fund,
Washington, DC, 5 and 6 November.
[3] For a discussion of the transmission channels of QE, see e.g. Coeuré, B. (2015),
"Embarking on public sector asset purchases", speech at the Second International Conference
on Sovereign Bond Markets, Frankfurt, 10 March.
[4] See e.g. ECB (2017), "Impact of the ECB's non-standard measures on financing conditions:
taking stock of recent evidence", Economic Bulletin, Issue 2.
[5] See ECB (2017), "Analysing euro area net portfolio investment outflows", Economic
Bulletin, Issue 2.
[6] See Fratzscher, M., et al. (2014), "ECB unconventional monetary policy actions: market
impact, international spillovers and transmission channels", paper presented at the 15th
Jacques Polak Annual Research Conference; and Georgiadis, G., and Gräb, J. (2016), "Global
financial market impact of the announcement of the ECB's asset purchase programme",
Journal of Financial Stability, 26, pp. 257-265.
[7] See ECB (2017), "Which sectors sold the government securities purchased by the
Eurosystem?", Economic Bulletin, Issue 4.
[8] Slide 6 also shows that there have been net inflows by non-residents into short-term debt
securities, which likely reflects the temporary placement of excess liquidity of foreign investors
with no access to the ECB's deposit facility. See Coeuré, B. (2017), "Bond scarcity and the
ECB's asset purchase programme", speech at the Club de Gestion Financière d'Associés en
Finance, Paris, 3 April.
[9] The reversal was probably reinforced by the Japanese government's decision, in April 2015,
to increase the Government Pension Fund's investment in foreign equities (the Government
Pension Fund is the largest of its kind in the world).
[10] See Carpenter, S., Demiralp, S., Ihrig, J., and Klee, E. (2015), "Analyzing Federal Reserve
asset purchases: From whom does the Fed buy?," Journal of Banking and Finance, Vol. 52,
pp. 230-244.
[11] See, for example, Neely, C. (2010), "The Large-Scale Asset Purchases Had Large
International Effects", Working Paper Series, Federal Reserve Bank of St. Louis; Fratzscher,
M., Lo Duca, M. and Straub, R. (2013), "On the International Spillovers of US Quantitative
Easing," Discussion Papers, DIW Berlin; Moore, J. et al. (2013), "Estimating the Impacts of
U.S. LSAPs on Emerging Market Economies' Local Currency Bond Markets", Staff Reports,
Federal Reserve Bank of New York, No 595; Rogers, J. H., Scotti, C. and Wright, J. H. (2014),
"Evaluating Asset-Market Effects of Unconventional Monetary Policy: A Cross-Country
Comparison", International Finance Discussion Papers, Board of Governors of the Federal
Reserve System, No 1101.
[12] See also ECB (2017), The International Role of the Euro, July. The share of the euro in
global foreign exchange reserves actually increased in 2016, even after controlling for
valuation effects arising from exchange rate movements. This suggests that adjustments in
the holdings in question were limited or concerned official reserve holders with small holdings.
[13] The sharp decline in flows to France towards the end of 2016 and early 2017 likely
reflected political concerns.
[14] See Altavilla, C., Carboni, G. and Motto, R. (2015), "Asset purchase programmes and
financial markets: lessons from the euro area", ECB Working Paper No. 1864.
[15] This is consistent with net short positioning against the euro between May 2014 and May
2017 in weekly data on commitments of traders collected by the U.S. Commodity Futures
Trading Commission (CFTC).
[16] See Deutsche Bundesbank (2017), "The Eurosystem's bond purchases and the exchange
rate of the euro", Monthly Report, January.
[17] The recent decoupling suggests that factors other than relative monetary policy
expectations are likely to have contributed to a stronger euro in recent months, such as
changes in risk premia. Market observers have pointed, for instance, to signs of unwinding of
what they called the "reflation trade" in US financial assets, and to improved sentiment towards
the euro area in the wake of the French presidential elections.
[18] See Bubeck, J., Habib, M., and Manganelli, S. (2017), "The portfolio of euro area fund
investors and ECB monetary policy announcements", mimeo, ECB, presented at the joint
ECBBoE-IMF workshop on "Spillovers from macroeconomic policies", Washington D.C., 26 April.
[19] See Andrade, P., Breckenfelder, J., De Fiore, F., Karadi, P. and Tristani, O. (2016), "The
ECB's asset purchase programme: an early assessment", ECB Working Paper No. 1956, and
the literature quoted in there.
[20] See Georgiadis and Gräb, op cit.
[21] This refers to the location of the initiating sales desk, which may not coincide with the
location of the trading desk. See ECB (2017), The international role of the euro, July.
[22] And, sometimes, even in co-locations where high-frequency trading firms' computers are
in the same data centres as exchange servers.
[23] Based on euro area portfolio investment abroad, measured in terms of 12-month moving
sums, which peaked in early 2015, suggesting a level of €2 billion per day (assuming that there
are 250 business days). This compares with $1.2 trillion worth of daily transactions in the
eurodollar pair, according to the BIS Triennial Survey of April 2016.
[24] For an earlier discussion, see Coeuré, B. (2013), "Currency fluctuations: the limits to
benign neglect", speech at the luncheon panel: Currency Wars and the G-20's Goal of Strong,
Sustainable, and Balanced Growth, Conference on Currency Wars: Economic Realities,
Institutional Responses, and the G-20 Agenda, Peterson Institute for International Economics,
Washington, D.C., 2 April.
[25] See e.g. ECB (2016), "Exchange rate pass-through into euro area inflation", Economic
Bulletin, July.
[26] See also Caballero R., Fahri, E. and Gourinchas, P. O. (2015), "Global Imbalances and
Currency Wars at the ZLB", NBER Working Paper No. 2167