yves mersch : the international role of the euro speech by mr yves mersch, governor of the central bank of luxembourg, at a financial seminar, hong kong, 11 november 2004. * * * ladies and gentlemen, since its inception, the euro ’ s international role has grown in a gradual but steady way. at the outset i would like to recall the eurosystem ’ s policy position vis - a - vis the internationalisation of the euro. the governing council of the ecb sees the internationalisation of the euro as a market - driven process. nevertheless, we analyse developments closely, as we are keen to know how the euro is used and by whom. thus, i will first review the main developments in more detail. then, i will turn to the eurosystem ’ s policy stance towards the international role of the euro. i will conclude by shortly highlighting the eurosystem ’ s stance on reserve management services. the gradual development of the international role of the euro in order to consider the main developments in the international use of the euro for the last 5 years, i will distinguish the varied use of the euro outside the euro area, by public authorities on the one hand and private agents on the other. let me start with public authorities. there are about 50 countries with an exchange rate regime linked to the euro, including those eu member states that have not yet joined the euro area. non - eu countries that use the euro as an anchor currency are mainly located in the eu ’ s neighbouring regions or are countries that have established special institutional arrangements with the eu or some of the eu member states. in most of these countries, the euro is also the main or the sole intervention currency used by the authorities to stabilise the exchange rates of their respective currencies. additionally, in these countries euro - denominated assets account for a substantial share of the foreign exchange reserves held by the respective authorities. the role of the euro as an anchor currency in third countries outside the euro area has remained stable overall. changes in exchange rate regimes involving the euro mainly involved the new eu member states, as three of them joined the exchange rate mechanism ii end - june 2004. the global reserve build - up continued at a rapid pace, with japan and other emerging asian economies accounting for the largest share in the total increase. benefiting from the appreciation against other international currencies, the share of the euro in official foreign exchange reserves has continued to increase gradually, from 19. 3 %

neutral stance on the internationalisation of its currency. this means that we neither hinder nor actively promote the development of this role. for example, decisions taken by non - euro area authorities to use the euro as an anchor, reserve or intervention currency have to be fully seen as unilateral measures. they do not involve any commitment on the part of the eurosystem. this rule knows only one exception : the exchange rate mechanism ii. with regard to this stance, it has of course to be noted that the eurosystem contributes to the international role of the euro in indirect ways. price stability is a key precondition for the development of the international role of a currency. thus, the stability - oriented monetary policy of the ecb contributes to the euro ’ s potential for expanding its international role. the eurosystem has also been a strong supporter of financial market integration in the eu. the introduction of the euro itself has undoubtedly led to a deeper and more integrated financial market. the evidence strongly suggests that this has supported the development of the international role of the euro. and when we refer to the fact that potential gains from monetary union will only be fully realised when european financial integration is fully achieved, this also applies to the euro ’ s use as an international financing and investment currency. let me stress that by being neutral we are not indifferent to the international role of the euro. indeed, we pay special attention to the international use of our currency and provide regular information to the public on related developments in the international financial arena, for example the recent build - up in foreign exchange reserves. the eurosystem ’ s reserve management services this leads me to say a few words on the eurosystem ’ s reserve management services. we have seen that the euro has firmly established its role as an important reserve currency, supported by its gradually increasing use at an international level. the eurosystem has therefore developed a new framework that specifically addresses the type of services required to support the management of euro - denominated reserve portfolios. the new framework builds on the well - established reserve management services infrastructures already in place at certain eurosystem central banks. consistent with the manner in which reserve management services have been provided over the years, the new ‘ standardized or harmonized ’ framework continues to be based on the core principles of financial security, legal security and confidentiality. this basis allows central bank customers to comprehensively manage their euro - denominated reserve assets in a safe, confidential and