ECB warns of eastern Europe risk as demand for euro cash rises

The European Central Bank (ECB) published July 2009 its review of the 'International role of the euro', focusing on developments during the year 2008.

The review showed that the international role of the euro maintains a strong regional pattern. Its international use continues to be most pronounced in countries with close geographical and institutional links with the euro area (ie Eastern and Central Europe). In some countries, there is evidence of an increasing role of the euro in currency substitution (use of euro banknotes) and asset substitution (use of the euro in bank deposits and loans) during 2008. These trends are not without risks for the countries concerned. In particular, the global financial crisis has underscored the risks associated with unhedged borrowing by households and corporations in countries, as a currency depreciation may lead to an increase in the borrowing costs of these economic agents.

ECB: The international role of the euro, July 2009 http://www.ecb.int/pub/pdf/other/euro-international-role200907en.pdf

ECB: Press Release, 8.7.09: Review of the international role of the euro http://www.ecb.int/press/pr/date/2009/html/pr090708.en.html

---