ECB Warns Euro Loses Reserve Share as Renminbi Gains in Hormuz-Disrupted Trade

FRANKFURT - The euro edged up in some measures of international use last year but lost ground in the one that matters most to central banks, as geopolitical turbulence pushed reserve managers toward gold and gave China's currency an unexpected opening through the Strait of Hormuz.

The European Central Bank published its 25th annual review of the euro's global standing on Tuesday. The verdict was mixed, and in places alarming. The report found that the euro's share of global foreign exchange reserves fell 0.5 percentage points to 20.2 percent, far below the dollar's 57 percent share, according to the ECB's own data. The dollar's lead, in other words, did not shrink - it held.

Where the euro did improve was in debt markets. The issuance of international bonds denominated in euros reached its highest level since the single currency was introduced, rising roughly 30 percent compared with 2024, the ECB said in a press release. The currency also took the leading position in green and sustainable international bond issuance for the first time. Foreign portfolio inflows into the euro area ran close to historical highs.

But the report's authors were careful not to allow those headlines to obscure a structural worry. "Forces of fragmentation are becoming more pronounced," ECB President Christine Lagarde said in the report, warning that the bank saw clear openings for the euro - conditional on action by European governments rather than the central bank itself.

The most striking passage in the full report concerns China's Cross-Border Interbank Payment System, known as CIPS. ECB staff found that settlement activity on CIPS surged in March 2026 following the outbreak of war in the Middle East. Customer-related cross-border payments by Chinese banks in renminbi reached a record USD 1.4 trillion in March alone, up roughly 30 percent on the previous month, according to the report. The ECB also noted that some ships made payments in renminbi - or in crypto-assets - to transit through the Strait of Hormuz in March and April of this year.

That last detail is the kind of data point that circulates quietly in monetary policy circles for years before it enters public debate. Beijing has been methodical. According to an ECB blog post published on the same day, more than 20 percent of French trade with China is now invoiced in renminbi - a figure that would have been inconceivable a decade ago. China modified its CIPS rules in February to allow settlements beyond its own currency, broadening the system's potential reach further.

The renminbi's overall share of global reserves now stands at 9 percent, the ECB report said, with the dollar and euro still the dominant pair but the Chinese currency closing the gap with third and fourth-placed sterling and yen.

The ECB's own role is limited by the terms of its mandate. What the central bank can offer - and has offered - is stability, liquidity lines to foreign central banks, and the institutional credibility that comes with two decades of a functioning monetary union. The three pillars underpinning the euro's global potential, Lagarde said in remarks widely quoted across the euro area press this week, are "economic resilience, legal and institutional integrity and geopolitical credibility."

The geopolitical credibility pillar is the hardest to build. As analysts at the Centre for European Reform have noted, a greater systemic role for the euro acts as a geopolitical shield: reducing reliance on the dollar would leave Europe less exposed should transatlantic relations deteriorate further. But that requires the completion of a genuine single capital market - something EU member states have discussed for years without delivering.

Euro area leaders acknowledged as much at the Euro Summit in March. According to the ECB's own report, they stressed that "the euro's position on the global stage will depend on Europe's economic and geopolitical strength, as well as the EU remaining a reliable and predictable international partner."

The arithmetic of the reserve share leaves little room for complacency. The dollar did not lose its footing in 2025. China moved deliberately. Europe, for now, is watching.

Sources cited:
- ECB - 'International role of the euro increased moderately in 2025' (press release, 2 June 2026) (https://www.ecb.europa.eu//press/pr/date/2026/html/ecb.pr260602~f941e87516.en.html)
- ECB - 'The international role of the euro, June 2026' (full report) (https://www.ecb.europa.eu/press/other-publications/ire/html/ecb.ire202606.en.html)
- ECB Blog - 'Europe needs to act to strengthen the role of its currency' (2 June 2026) (https://www.ecb.europa.eu/press/blog/date/2026/html/ecb.blog20260602~65ca6b0d68.en.html)
- Reuters / Investing.com - 'Euro fails to nab big market share from dollar despite erratic US policy, report shows' (https://www.investing.com/news/economy-news/euro-fails-to-nab-big-market-share-from-dollar-despite-erratic-us-policy-report-shows-4720994)
- Centre for European Reform - 'The ECB's bid to strengthen the euro's global role' (https://www.cer.eu/insights/ecbs-bid-strengthen-euros-global-role)