The European Central Bank (ECB) diligently monitors the international standing of the euro, regularly publishing reports on its usage across the globe. The most recent ECB report, released in June 2023, indicated that the euro’s international role remained stable in 2022 compared to 2021. Across various metrics, the euro’s share in international currency utilization hovered around 20%, consistent with the preceding year. This report underscored the euro’s continued significance within the international monetary system, maintaining its position as the second most utilized currency in key sectors like official foreign exchange reserves and international bond issuance.
Payment flows offer another lens through which to examine a currency’s global application. For any given currency, a metric can be derived by calculating the value of cross-border interbank payments denominated in that currency relative to the total value of interbank payments across all currencies. These interbank transactions can be executed via diverse mechanisms, including multilateral payment systems, bilateral correspondent banking relationships, or a hybrid of both. Swift, a global network for financial messaging, facilitates the standardized exchange of messages for these payments.
Numerous payment systems worldwide, notably large-value payment systems handling euro transactions like T2, rely on Swift for communication among participants. T2, succeeding TARGET2, serves as the Eurosystem’s real-time gross settlement system for euro-denominated payments, processing and settling transactions in central bank money. In 2023, T2 processed 92% of all euro-denominated payments settled by large-value payment systems by value, and 70% by volume. Consequently, T2 traffic is a crucial determinant of the total value of euro payments processed by major payment systems, and a significant component of the overall value of euro payment messages transmitted and recorded on the Swift network.
However, data from after March 2023 reveals a decrease in the euro’s proportion of total Swift payment messages in value terms. Swift provides a monthly indicator for the world’s most used currencies, including the euro, quantifying their usage in global payments by measuring the value of payment messages sent by financial institutions via the Swift network. This Swift indicator showed that euro-denominated payment messages averaged 36.0% of all currency messages between January 2020 and February 2023 (Chart A). Subsequently, this share declined to 32.6% in March 2023 and further to 31.7% in April 2023. By the fourth quarter of 2023, the euro’s share stabilized at a lower average of 22.6%.
Chart A
Share of the euro in total payments processed via Swift in value terms and T2 traffic
(left-hand scale: percentages; right-hand scale: EUR trillions; monthly totals)
Sources: Swift, TARGET2, T2 and ECB calculations.
Notes: The last data point relates to December 2023. The Swift indicator captures messages exchanged via Swift as live and delivered on the basis of the MT103 and MT202 message types (customer and interbank payments respectively) and their ISO equivalents. The T2 statistics may be subject to revision owing to methodological changes resulting from the launch of the consolidated T2-T2S platform.
This apparent reduction in the euro’s share of Swift payment messages coincided with a significant infrastructural transformation in Europe and a transition to a new Swift message standard. On March 20, 2023, the Eurosystem launched its consolidated T2-T2S platform, a novel central bank-operated core infrastructure for the euro. This platform enhances liquidity management and payment efficiencies, enabling participants to optimize their payment operations. Simultaneously, financial institutions within the euro market migrated from the older MT message standard to the new ISO 20022 pacs message standard on the Swift network. This shift promotes enhanced interoperability, streamlined processing, and more detailed categorization of financial data.
Both of these developments influenced euro-denominated payment messages transmitted via Swift, consequently impacting the euro’s share in total Swift messages. The updated framework under the consolidated T2-T2S platform and the new message standard have altered the mechanisms of euro payments and euro liquidity management, particularly affecting liquidity management for both intra- and interbank flows. Certain transactions, typically of high value, now conducted using the new message standard are intentionally excluded from the Swift indicator’s calculation. This exclusion is the primary reason for the observed decrease in the indicator post-March 2023.
The technical explanation for the drop in the euro’s Swift payment share is reinforced by trends in the value of euro payments settled between banks in T2, which exhibit different dynamics (Chart A). The average monthly value of euro-denominated customer and interbank payments settled via T2 increased to over €27.3 trillion in 2023, up from €25.9 trillion in TARGET2 in 2020. Moreover, these values experienced only a minor adjustment, rather than a substantial level shift, following the implementation of new liquidity management arrangements in March 2023. A similar upward trend is evident in the average monthly volume of customer and interbank payments processed through T2, rising to 7.8 million transactions in 2023 from 6.3 million in TARGET2 in 2020.
Another metric highlighting the euro’s global currency role is the proportion of euro payments in T2 (by value) where either the instructing bank or the beneficiary bank is located outside the euro area. T2, like its predecessor TARGET2, facilitates cross-border euro payments for banks worldwide. Banks situated outside the euro area typically depend on correspondent banks with direct access to euro area payment systems to execute these transactions.
This indicator of global euro payments within T2 showed no disruption post-March 2023, confirming the stability of euro payments involving at least one bank outside the euro area. The monthly value of these global customer and interbank payments in T2 averaged €11.6 trillion between March and December 2023, consistent with levels observed in previous years. These payments represented 43.0% of all interbank payments in T2 during this period, showing no indication of decline after March 2023 (Chart B).
Chart B
Global customer and interbank payments in T2
(left-hand scale: EUR trillions; right-hand scale: percentages; monthly totals)
Sources: TARGET2, T2 and ECB calculations.
Notes: The last data point relates to December 2023. “Global” payments are those where the instructing bank and/or the beneficiary bank is located outside the euro area. The T2 statistics may be subject to revision owing to methodological changes resulting from the launch of the consolidated T2-T2S platform.
In conclusion, the observed decrease in the euro’s share of total Swift messages after March 2023 does not reflect a decrease in the value of payments processed through T2 or a contraction in its global reach. T2, as the core financial market infrastructure for the euro, remains a significant component of total euro payments processed via Swift in value terms. Instead, the reduction in the euro’s Swift share appears to be a consequence of the launch of the consolidated T2-T2S platform and the market’s adoption of the new ISO 20022 message standard. These changes have altered banks’ liquidity management practices and the types of messages utilized, leading to the exclusion of certain payments from the Swift indicator. Therefore, when assessing the global role of the euro, it is crucial to interpret payment traffic indicators, particularly those from Swift, with careful consideration of these technical factors.
