The euro area was more attractive to foreign investors last year compared with 2012, research by the European Central Bank shows.
A report by the bank found that international investors' interest in euro area securities, which are mostly denominated in euro, grew markedly over the course of 2013.
Specifically, foreign demand for euro area portfolio investments (debt securities and equities) reached its strongest level since the onset of the financial crisis in 2007, amounting to 3.7% of euro area GDP, compared with 3% in 2012.
Sustained capital inflows to the euro area were mirrored in a broad-based and steady strengthening of the euro exchange rate, which appreciated by 7% in nominal effective terms in 2013, the second largest appreciation since 1999.
Other indicators of the international use of the euro turned to or remained in positive territory in 2013. Foreign demand for euro banknotes increased for a third consecutive year and the sovereign debt crisis had no impact on the use of the euro as parallel currency in central, Eastern and southeastern Europe.
But the report also observed that international use of the euro declined in other market segments. For example, the euro's share in global FX reserves decreased by 0.9 percentage point (at constant exchange rates) in 2013 to 24.4%. Nevertheless, the euro remains the second most important international reserve currency.
Meanwhile, the share of the euro as an international financing currency declined by 1.4 percentage points (at constant exchange rates), to 25.3%.
Sally Percy is editor of The Treasurer