Deutsche Bank Research economist, Nicolaus Heinen, says that during the crisis, which began on Aug 09, 2007 when French bank BNP Paribas suspended three investment funds worth €2bn citing problems in the US sub prime mortgage sector, industrial countries have geared themselves towards the euro. The euro’s share in the forex reserves of these countries is up by over 11.63% from Q2 2007, to 25.15%. By contrast, the share of the US dollar is down by 4.55% to 64.66%. The emerging markets posted a smaller increase in their euro holdings.

While the euro’s share in their reserves increased by 2.75% to 29.51%, the dollar’s share fell by 6.46% to 58.04%. The second set of figures has only limited significance, though, especially since lately the emerging markets have only given a breakdown of 40% of their forex reserves, as opposed to 86% in the industrial countries. Heinen says there have also been changes in relation to gold, even though the world’s gold reserves have expanded by merely 1.9%. The industrial countries have seen their gold reserves decline by 1.72%, from 712.4 million fine ounces to 700.2 million. By contrast, the gold reserves of the emerging markets have risen from 140.2 million to 170.1 million, i.e. by more than 21.37%.

The economist says that since December 2009, public attention has come to focus on macroeconomic imbalances and high debt levels. However, this “euro crisis” has not been mirrored in the development of the euro as a reserve currency: between Q4 2009 and Q1 2010, euro-denominated reserves increased by 0.66%  --  somewhat less than the global volume of foreign exchange reserves, which rose by 1.1% in the same period. While the euro’s share continued to increase among the industrial countries in a quarterly comparison (+1.37%), it fell by 2.06% among the emerging markets. For the time being, there are no signs of a euro crisis emerging in the area of foreign exchange reserves - - part of the reason being that central banks and sovereign wealth funds have a longer-term investment horizon than forex traders. This assessment cannot be confirmed conclusively until autumn at the earliest, though, when the figures for the second quarter are published.

Nicolaus Heinen says in coming years, the emerging markets could conceivably continue to diversify their forex reserves in gold and euros. The future role of the euro will hinge not only on whether the ECB continues to pursue credible monetary policy but also on better coordination of budgetary and competition policies among the euro countries, even though the latest turbulence in the Eurozone has had little impact so far on the use of the euro as a reserve currency.