(CNN) -- The euro's challenge to the international status of the US dollar has been set back a generation as new data show developing countries dumping the European currency from their official reserves.
Central banks in developing countries sold €45bn of euros in 2012, according to data compiled by the International Monetary Fund, cutting their holdings of the currency by 8 per cent.
This highlights the damage Europe's sovereign debt crisis has done to its standing in the international financial system as the chance of rivalling the dollar -- one dream of the single currency's founders -- slips away.
"It'll be the number two international currency but I wouldn't say there are any prospects of it challenging the dollar," said Jeffrey Frankel, professor of economics at Harvard's Kennedy School of Government.
The choice of where to hold reserves sends a clear signal of which currencies developing countries regard as the most stable, safe and liquid. Euros now make up only 24 per cent of their reserves, the lowest since 2002, and down from a peak of 31 per cent as recently as 2009. The dollar has held steady at about 60 per cent.
Developing countries have shifted instead into other currencies such as Australian dollars and those of fellow emerging markets. The euro's share of total global reserves has also fallen.
Mr Frankel said the size of the eurozone still made euros competitive as a reserve currency and returns were no lower than in other big advanced economies. But the eurozone bond markets are no longer as deep or liquid because of concerns about the creditworthiness of Spain and Italy. A reserve asset must hold its value and be easy to sell during a crisis.
"The degree of integration across European financial markets has taken a step back," Mr Frankel said. "That is the dimension on which the euro has lost ground in international currency status."
The euro may regain its allure if Europe moves towards fiscal union and a single sovereign bond market. But its moment may have passed as big shifts in the global economy boost new emerging market currencies that will challenge both the euro and the dollar.
"The effects of the euro crisis will linger, growth will be slow, interest rates will remain low, and the general attractiveness of euro assets low," said Edwin Truman, senior fellow at the Peterson Institute think-tank in Washington. "The dollar is holding its own for now, and we are moving towards a multicurrency system."
China and Brazil last week signed a $30bn swap deal so each can borrow the other's currency in the event of turmoil in the international financial system. That bypasses the need to use dollar reserves. China is gradually expanding the international role of its renminbi.
The dollar has dominated the global financial system since the Bretton Woods agreement in 1944. The US benefits because it can borrow at lower interest rates but must also shoulder the responsibility of keeping the dollar stable.