Unexpectedly, while the probable economic growth of the Eurozone countries is rather low compared to that of the United States, and that the effectiveness of companies in the euro area is poorer than that observed in the United States, the United Kingdom and Japan, the euro appreciates against the dollar, the yen and the currencies of emerging economies such as China, India, Russian federation and South Korea, except Brazil. By surpassing the 1.50 dollars for one euro, and even 1.52 dollar over one euro, the single European currency continues to rise relative to the green one.

More obviously and more important is the constant appreciation of the effective exchange rate since 2002 in the Eurozone countries. The effective exchange rate of a currency, dissimilar to bilateral exchange rates between two currencies, measures the value of a currency in relation to a biased currency basket, therefore it is a better indicator of the attractiveness of an economic zone, and its differences, although qualitatively indistinguishable, are much less remarkable but still substantial. Among the explanations, one can distinguish between cyclical and repeated causes of structural, non-cyclical causes.

From a cyclical point of view, worries about the US economy can be emphasized since the subprime mortgage crisis. The reactions of the Fed result in successive decreases in interest rates and deterrent the holding of certain dollar assets. From a structural point of view, the factors of the rise of the euro and the devaluation of the dollar are more difficult to establish with certainty. The weakness of potential growth in the euro area should be a restrictive to holding assets in euros, particularly since the prospects for speeding up productivity gains are low, so that demographic prospects show an aging population.

One of the explanations would be that in this global economy where capital is increasingly moving, and increasingly fast, in search of ever higher yields, in spite of the costs related with the financial bubbles they create and the consequences on the economy, the real demand for euro-denominated assets continues to go faster, while at the same time the nature of these investment flows in euros would be differentiated.

In order to differentiate their asset portfolios, central banks buy large quantities of euro-denominated bonds. They would be influenced by the trustworthiness of the ECB’s anti-inflationary monetary policy and by the lack of most important economic disproportions comparable to those of the US economy. Additionally, private investors would be strongly demanding euro-denominated shares, which would result in a weak correlation between share prices of large companies and the overall state of the economy of Eurozone. These highly internationalized firms would see their profitability deviate from that of mainly domestic firms, so they would consequently barely or not be affected by the poor growth of the Eurozone economy as a whole.

Under these circumstances, there would be a previously determined surplus of the demand for euro assets by non-resident agents, in particular central banks. This type of deficit in the supply of assets in euros for non-resident agents can be described by the outer surplus of the euro area. The combination of the external surplus in Eurozone and the increase in ex-ante demand for assets denominated in euros is not remarkably replicated in the appreciation of the single currency, so the euro these days takes the form of a new international reserve currency for central banks, which traditionally invest their reserves in deposits and risk-free bonds, and for private agents since stocks and bonds are of long-term securities.