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[[Image:European Central Bank 041107.jpg|thumb|151px|The [[European Central Bank|ECB]] in [[Frankfurt]], [[Germany]], is in charge of the Eurozone's monetary policy]]
[[Image:European Central Bank 041107.jpg|thumb|151px|The [[European Central Bank|ECB]] in [[Frankfurt]], [[Germany]], is in charge of the Eurozone's monetary policy]]
{{main|euro coins|euro banknotes}}
{{main|euro coins|euro banknotes}}
The euro is divided into 100 [[Cent (currency)|cents]] (also referred to as ''euro cents'', especially when distinguishing them from other currencies). All circulating euro coins (including the [[€2 commemorative coins]]) have a ''common side'' showing the denomination (value) with the old 15 EU-countries in the background. This common side was designed by [[Luc Luycx]]. From 2007 or 2008 on (depending on the country where the coin is issued) that “old” map is replaced by a map of Europe, thus also showing non-EU-members like Norway. The coins also have a ''national side'' showing an image specifically chosen by the country that issued the coin. Euro coins from any country may be freely used in any nation which has adopted the euro.
The euro is divided into 100 [[Cent (currency)|cent]] (also referred to as ''euro cent'', especially when distinguishing them from other currencies). All circulating euro coins (including the [[€2 commemorative coins]]) have a ''common side'' showing the denomination (value) with the old 15 EU-countries in the background. This common side was designed by [[Luc Luycx]]. From 2007 or 2008 on (depending on the country where the coin is issued) that “old” map is replaced by a map of Europe, thus also showing non-EU-members like Norway. The coins also have a ''national side'' showing an image specifically chosen by the country that issued the coin. Euro coins from any country may be freely used in any nation which has adopted the euro.


The coin denominations are [[2 euro coins|€2]], [[1 euro coins|€1]], [[50 cent euro coins|50 cent]], [[20 cent euro coins|20 cent]], [[10 cent euro coins|10 cent]], [[5 cent euro coins|5 cent]], [[2 cent euro coins|2 cent]] and [[1 cent euro coins|1 cent]]. In the [[Netherlands]], some, and in [[Finland]], by law, cash transactions are rounded to the nearest five cent, to avoid the use of the two smallest coins.{{Fact|date=July 2008}}
The coin denominations are [[2 euro coins|€2]], [[1 euro coins|€1]], [[50 cent euro coins|50 cent]], [[20 cent euro coins|20 cent]], [[10 cent euro coins|10 cent]], [[5 cent euro coins|5 cent]], [[2 cent euro coins|2 cent]] and [[1 cent euro coins|1 cent]]. In the [[Netherlands]], some, and in [[Finland]], by law, cash transactions are rounded to the nearest five cent, to avoid the use of the two smallest coins.{{Fact|date=July 2008}}

Revision as of 15:57, 7 September 2008

For other uses, see Euro (disambiguation).
"EUR" redirects here. For other uses, see EUR (disambiguation).
Euro
евро Template:Bg icon
ευρώ Template:Gr icon
euró Template:Hu icon
eoró Template:Ga icon
ewro Template:Mt icon
evro Template:Sl icon
File:Euro coins version II.png
BanknotesCoins
ISO 4217
Unit
PluralSee Euro linguistic issues
Symbol€‎
Denominations
Subunit
 1/100cent
actual usage varies depending on language
Plural
 centSee article
Banknotes
 Freq. used€5, €10, €20, €50
 Rarely used€100, €200, €500
Coins
 Freq. used1, 2, 5, 10, 20, 50 cent, €1, €2
unless otherwise stated as rarely used
 Rarely used1 and 2 cent
(applies to Finland and The Netherlands)
Demographics
Official user(s)
European Union 15 Eurozone members
Unofficial user(s)
Issuance
Central bankEuropean Central Bank
 Websitewww.ecb.eu
Printer
printers
 Website
websites
Valuation
Inflation4.0%
 SourceEuropean Central Bank, June 2008
 MethodHICP
Pegged by
10 currencies

The euro (currency sign: €; currency code: EUR) is the official currency of the European Union (EU). Fifteen member states have adopted it, known collectively as the Eurozone (Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, Spain). The currency is also used in five further countries with formal agreements and six other countries without such agreements. Hence it is the single currency for over 320 million Europeans.[1] Including areas using currencies pegged to the euro, the euro directly affects close to 500 million people worldwide.[2] With more than €610 billion in circulation as of December 2006 (equivalent to US$802 billion at the exchange rates at the time), the euro is the currency with the highest combined value of cash in circulation in the world, having surpassed the U.S. dollar (USD).[3]

Taking official estimates of 2007 GDP, the Eurozone is the largest economy in the world by March 2008 after the USD/EUR exchange rate surpassed 1.56.[4][5][6][7]

The euro was introduced to world financial markets as an accounting currency in 1999 and launched as physical coins and banknotes on 1 January 2002. It replaced the former European Currency Unit (ECU) at a ratio of 1:1.

The euro is managed and administered by the Frankfurt-based European Central Bank (ECB) and the Eurosystem (composed of the central banks of the euro zone countries). As an independent central bank, the ECB has sole authority to set monetary policy. The Eurosystem participates in the printing, minting and distribution of notes and coins in all member states, and the operation of the Eurozone payment systems.

While all European Union (EU) member states are eligible to join if they comply with certain monetary requirements, not all EU members have chosen to adopt the currency. All nations that have joined the EU since the 1993 implementation of the Maastricht Treaty have pledged to adopt the euro in due course. Maastricht obliged current members to join the euro; however, the United Kingdom and Denmark negotiated exemptions from that requirement for themselves.[8] Sweden turned down the euro in a 2003 referendum, and has circumvented the requirement to join the euro area by not meeting the membership criteria. In addition, three European microstates (Vatican City, Monaco, and San Marino), although not EU members, have adopted the euro due to currency unions with member states. Three other European states Andorra, Montenegro, and Kosovo have adopted the euro unilaterally, while not being EU members either (see Eurozone.)

Characteristics

Coins and banknotes

The ECB in Frankfurt, Germany, is in charge of the Eurozone's monetary policy
Main articles: euro coins and euro banknotes

The euro is divided into 100 cent (also referred to as euro cent, especially when distinguishing them from other currencies). All circulating euro coins (including the €2 commemorative coins) have a common side showing the denomination (value) with the old 15 EU-countries in the background. This common side was designed by Luc Luycx. From 2007 or 2008 on (depending on the country where the coin is issued) that “old” map is replaced by a map of Europe, thus also showing non-EU-members like Norway. The coins also have a national side showing an image specifically chosen by the country that issued the coin. Euro coins from any country may be freely used in any nation which has adopted the euro.

The coin denominations are €2, €1, 50 cent, 20 cent, 10 cent, 5 cent, 2 cent and 1 cent. In the Netherlands, some, and in Finland, by law, cash transactions are rounded to the nearest five cent, to avoid the use of the two smallest coins.[citation needed]

Coins have a common side, and a national side designed by the respective national authorities.

Commemorative coins with €2 face value have been issued with changes to the design of the national side of the coin — as Greece did for the 2004 Summer Olympics. These coins are legal tender throughout the Eurozone. Coins with various other denominations have been issued as well, but these are not intended for general circulation. These later coins are only legal tender in the nation which issued them.[citation needed]

The design for the euro banknotes have common designs on both sides. Notes are issued in €500, €200, €100, €50, €20, €10, €5. Each banknote has its own colour and is dedicated to an artistic period of European architecture. The front (recto) of the note features windows or gateways while the back (verso) has bridges. Care has been taken so that the architectural examples do not represent any actual existing monument, so as not to induce jealousy or controversy in the choice of monuments. Some of the highest denominations such as the €500 are not issued in all countries, though they remain legal tender throughout the Eurozone.

Payments clearing, electronic funds transfer

All intra-Eurozone transfers shall be considered domestic and bear the corresponding domestic transfer costs. This is true for retail payments, although several ECB payment methods can be used. Credit/debit card charging and ATM withdrawals within the Eurozone are also charged as domestic. The ECB has not standardised paper-based payment orders, such as cheques; these are still domestic-based.

The ECB has set up a clearing system, TARGET, for large euro transactions.[9]

Currency sign

Main article: Euro sign
The official construction of the euro logo, which was specified to be printed in Pantone Yellow on a Reflex Blue background

A special euro currency sign (€) was designed after a public survey had narrowed the original ten proposals down to two. The European Commission then chose the design created by the Belgian Alain Billiet. The official story of the design history of the euro sign is disputed by Arthur Eisenmenger, a former chief graphic designer for the EEC, who claims to have created it as a generic symbol of Europe.[10]

Inspiration for the € symbol itself came from the Greek epsilon (Є) – a reference to the cradle of European civilisation – and the first letter of the word Europe, crossed by two parallel lines to ‘certify’ the stability of the euro.

— European Commission[11]

The European Commission also specified a euro logo with exact proportions and foreground/background colour tones.[12] While the Commission intended the logo to be a prescribed glyph shape, font designers made it clear that they intended to design their own variants instead.[13] Typewriters lacking the euro sign, can create it by typing a capital 'C', backspacing and overstriking it with the equal ('=') sign. Placement of the currency sign relative to the numeric amount varies from nation to nation, and there is no official recommendation on the issue.[14]

Economic and monetary union

History (1990–present)

Main article: Economic and Monetary Union of the European Union
For earlier monetary history in Europe, see European Monetary System.
For transition to the euro, see Introduction of the euro.
Historical currencies of the European Union
Currency Code Rate[15] Fixed on Yielded
Austrian schilling ATS 13.7603 31 December 1998 1 January 1999
Belgian franc BEF 40.3399 31 December 1998 1 January 1999
Dutch guilder NLG 2.20371 31 December 1998 1 January 1999
Finnish markka FIM 5.94573 31 December 1998 1 January 1999
French franc FRF 6.55957 31 December 1998 1 January 1999
German mark DEM 1.95583 31 December 1998 1 January 1999
Irish pound IEP 0.787564 31 December 1998 1 January 1999
Italian lira ITL 1,936.27 31 December 1998 1 January 1999
Luxembourg franc LUF 40.3399 31 December 1998 1 January 1999
Portuguese escudo PTE 200.482 31 December 1998 1 January 1999
Spanish peseta ESP 166.386 31 December 1998 1 January 1999
Greek drachma GRD 340.750 19 June 2000 1 January 2001
Slovenian tolar SIT 239.640 11 July 2006 1 January 2007
Cypriot pound CYP 0.585274 10 July 2007 1 January 2008
Maltese lira MTL 0.429300 10 July 2007 1 January 2008
Slovak koruna SKK 30.1260 8 July 2008 1 January 2009
Estonian kroon EEK 15.6466 13 July 2010 1 January 2011
Latvian lats LVL 0.702804 9 July 2013 1 January 2014
Lithuanian litas LTL 3.45280 23 July 2014 1 January 2015
Croatian kuna HRK 7.53450 12 July 2022 1 January 2023

The euro was established by the provisions in the 1992 Maastricht Treaty on European Union that was used to establish an economic and monetary union. In order to participate in the new currency, member states had to meet strict criteria such as a budget deficit of less than three per cent of their GDP, a debt ratio of less than sixty per cent of GDP, low inflation, and interest rates close to the EU average. In the Maastricht Treaty, the United Kingdom and Denmark were granted exemptions from moving to the stage of monetary union which would result in the introduction of the euro.

Economists who helped create or contributed to the euro include Robert Mundell, Wim Duisenberg, Robert Tollison, Neil Dowling, Fred Arditti and Tommaso Padoa-Schioppa. (For macro-economic theory, see below.)

Due to differences in national conventions for rounding and significant digits, all conversion between the national currencies had to be carried out using the process of triangulation via the euro. The definitive values in euro of these subdivisions (which represent the exchange rates at which the currency entered the euro) are shown at right.

The rates were determined by the Council of the European Union, based on a recommendation from the European Commission based on the market rates on 31 December 1998, so that one ECU (European Currency Unit) would equal one euro. (The European Currency Unit was an accounting unit used by the EU, based on the currencies of the member states; it was not a currency in its own right.) Council Regulation 2866/98 (EC), of 31 December 1998, set these rates. They could not be set earlier, because the ECU depended on the closing exchange rate of the non-euro currencies (principally the pound sterling) that day.

The procedure used to fix the irrevocable conversion rate between the drachma and the euro was different, since the euro by then was already two years old. While the conversion rates for the initial eleven currencies were determined only hours before the euro was introduced, the conversion rate for the Greek drachma was fixed several months beforehand, in Council Regulation 1478/2000 (EC), of 19 June 2000.

The currency was introduced in non-physical form (travellers' cheques, electronic transfers, banking, etc.) at midnight on 1 January 1999, when the national currencies of participating countries (the Eurozone) ceased to exist independently in that their exchange rates were locked at fixed rates against each other, effectively making them mere non-decimal subdivisions of the euro. The euro thus became the successor to the European Currency Unit (ECU). The notes and coins for the old currencies, however, continued to be used as legal tender until new notes and coins were introduced on 1 January 2002.

File:Ecofin euro presentation.jpg
The Ecofin presenting the denominations 22 September 2001

The changeover period during which the former currencies' notes and coins were exchanged for those of the euro lasted about two months, until 28 February 2002. The official date on which the national currencies ceased to be legal tender varied from member state to member state. The earliest date was in Germany; the Mark officially ceased to be legal tender on 31 December 2001, though the exchange period lasted two months. The final date was 28 February 2002, by which all national currencies ceased to be legal tender in their respective member states. However, even after the official date, they continued to be accepted by national central banks for periods ranging from several years to forever in Austria, Germany, Ireland, and Spain. The earliest coins to become non-convertible were the Portuguese escudos, which ceased to have monetary value after 31 December 2002, although banknotes remain exchangeable until 2022.

Slovenia joined the Eurozone on 1 January 2007, followed by Malta and Cyprus on 1 January 2008.[16]

Eurozone

Main article: Eurozone
  Eurozone
  EU members in ERM II, without an opt-out
  EU members in ERM II, with an opt-out
  EU members obliged to adopt the euro once convergence criteria are met
  Non–EU members using the euro with a monetary agreement
  Non–EU members using the euro unilaterally

Future prospects

Main articles: Eurozone and Enlargement of the eurozone

Pre-2004 EU members

From Greece's participation in 2001 until the EU enlargement in 2004, Denmark, Sweden and the United Kingdom were the only EU member states outside the monetary union. The situation for the three older member states also looks different from that of the newer EU members; the three countries have no clear roadmap for adopting the euro:

  • Denmark negotiated a number of opt-out clauses from the Maastricht treaty after it had been rejected in a first referendum. On 28 September 2000, another referendum was held in Denmark regarding the euro resulting in a 53.2% vote against joining. However, Danish politicians have suggested that debate on abolishing the four opt-out clauses may be re-opened. In addition, Denmark has pegged its krone to the euro (€1 = DKK 7.46038 ± 2.25%) as the krone remains in the ERM. Although not part of the European Union, both Greenland and the Faroe Islands use the Danish krone (the Faroes in the form of the Faroese króna), and so also fall within the ERM.
  • Sweden: Sweden is obliged to join the euro by the 1994 Act of Accession, when it meets the economic conditions. Although the other conditions are met, the krona has never been part of ERM II, rendering Sweden ineligible. In 2003, a public referendum rejected euro membership, and Sweden has no plans to adopt the euro. The EU has made it clear that it will tolerate this with respect to Sweden, giving Sweden a de facto opt-out, but not those member states that joined in 2004 or 2007.[citation needed]
  • The United Kingdom has an opt-out from eurozone membership under the Maastricht treaty and is not obliged to join the euro. While the government is in favour of membership provided the economic conditions are right (requiring that "five economic tests" be met), the question has never been put to referendum.[19] The United Kingdom was forced to withdraw the pound sterling from the ERM (the precursor to ERM II) on Black Wednesday (16 September, 1992) due a mismatch between its benchmark currency parity and its economic performance, and the pound is not part of ERM II.

Post-2004 EU members

EU members which have not adopted the euro
Non-eurozone member state Currency
(Code) 		Central rate per €1[20] EU join date ERM II join date[20] Government policy on euro adoption Convergence criteria compliance[21]
(as of June 2022) 		Notes
Bulgaria Bulgaria Lev
(BGN) 		1.95583[23] 2007-01-01 2020-07-10 Euro by 1 January 2025[24][25] Not compliant on inflation and legislation
(Reassessment due in June 2024)[26][21]
Czech Republic Czech Rep. Koruna
(CZK) 		Free floating 2004-05-01 None Assessment of joining ERM-II to be completed by October 2024[27] Not compliant on 3 out of 5 criteria
Denmark Denmark Krone
(DKK) 		7.46038 1973-01-01 1999-01-01 Not on government's agenda[28][29] Not assessed due to treaty opt-out from eurozone membership Rejected euro adoption by referendum in 2000
Hungary Hungary Forint
(HUF) 		Free floating 2004-05-01 None Not on government's agenda[30] Not compliant on 4 out of 5 criteria
Poland Poland Złoty
(PLN) 		Free floating 2004-05-01 None Not on government's agenda[citation needed] Not compliant on 4 out of 5 criteria
Romania Romania Leu
(RON) 		Free floating 2007-01-01 None ERM-II by 2026 and euro by 1 January 2029[31][32][33] Not compliant on 5 out of 5 criteria
Sweden Sweden Krona
(SEK) 		Free floating 1995-01-01 None Not on government's agenda[34] Not compliant on ERM-II and legislation Rejected euro adoption by referendum in 2003. Still obliged to adopt the euro once compliant with all criteria.[35]

As of 2008, nine new EU member states have a currency other than the euro; however, all of these countries are required by their Accession Treaties to join the euro. Some of the following countries have already joined the European Exchange Rate Mechanism, ERM II. They and the others have set themselves the goal of joining the euro (EMU III) as follows:

File:Dual pricing.JPG
Dual pricing in Slovakia since August 2008)

The entry of Lithuania and Estonia as planned for 1 January 2007 was postponed due to unacceptably high inflation rates in those countries. Some of these currencies do not float against the euro, and a subset of those were unilaterally pegged to the euro before joining ERM II. See European Exchange Rate Mechanism, currencies related to the euro, and individual currency articles for more details.

The Czech Republic had originally aimed for entry into the ERM II in either 2008 or 2009, but the current government has officially dropped the 2010 target date, saying it will clearly not be able to meet the economic criteria. The new stated goal is 2012.[42]

Similarly, Latvia had aimed to join the euro in 2008 but inflation rates of over 11% have resulted in a delay as the country does not meet the current criteria under council rules. The government's official target is now 1 January 2012 although the head of the Bank of Latvia has suggested that 2013 may be a more realistic date.[43]

The Polish Finance Minister declared that he believed that a public declaration of a target entry date for Polish entry would be an "improper strategy".[44]

Other sources question the realism of even the revised Czech, Lithuanian and Estonian targets.[45]

The Fifth Report on the Practical Preparations for the Future Enlargement of the Euro Area[46] stated on 16 July 2007 that only Cyprus, Malta (both of which adopted the euro in January 2008), Slovakia (2009) and Romania (2014) had currently set official target dates for adopting the euro.

On May 7 2008, the European Central Bank stated that Slovakia is ready to join the eurozone from January 1 2009. This was confirmed by the Eurozone's leaders at the 19-20 June summit, with the conversion rate set adopted on July 8 2008 with value 30.126.[47]

Estonia, Latvia, Lithuania and Slovakia have already finalised the design for their respective coins' obverse sides.

Economics of the euro

Optimal currency area

Main article: Optimum currency area

In economics, an optimum currency area (or region) (OCA, or OCR) is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency. There are two models, both proposed by Robert A. Mundell: the stationary expectations model and the international risk sharing model. Mundell himself advocates the international risk sharing model and thus concludes in favour of the euro.[48]

Transaction costs and risks

The most obvious benefit of adopting a single currency is removing from trade the cost of exchanging currency, theoretically allowing businesses and individuals to consummate previously unprofitable trades. On the consumer side, banks in the Eurozone must charge the same for intra-member cross-border transactions as purely domestic transactions for electronic payments (e.g. credit cards, debit cards and cash machine withdrawals).

The absence of distinct currencies also removes exchange rate risks. The risk of unanticipated exchange rate movement has always added an additional risk or uncertainty for companies or individuals looking to invest or trade outside their own currency zones. Companies that hedge against this risk will no longer need to shoulder this additional cost. The reduction in risk is particularly important for countries whose currencies have traditionally fluctuated a great deal, particularly the Mediterranean nations.

Financial markets on the continent are expected to be far more liquid and flexible than they were in the past. The reduction in cross-border transaction costs will allow larger banking firms to provide a wider array of banking services that can compete across and beyond the Eurozone.

Price parity

Another effect of the common European currency is that differences in prices—in particular in price levels—should decrease because of the 'law of one price'. Differences in prices can trigger arbitrage, i.e. speculative trade in a commodity across borders purely to exploit the price differential. Therefore, prices on commonly traded goods are likely to converge, causing inflation in some regions and deflation in others during the transition. Some evidence of this has been observed in specific markets. [49]

Macroeconomic stability

Low levels of inflation are the hallmark of stable and modern economies. Because a high level of inflation acts as a tax (seigniorage) and theoretically discourages investment, it is generally viewed[who?] as undesirable. In spite of the downside, many countries have been unable or unwilling to deal with serious inflationary pressures. Some countries have successfully contained them by establishing largely independent central banks. One such bank was the Bundesbank in Germany; as the European Central Bank is modelled on the Bundesbank,[citation needed] it is independent of the pressures of national governments and has a mandate to keep inflationary pressures low.[citation needed] Member countries that join the bank commit to lower inflation, hoping to enjoy the macroeconomic stability associated with low levels of expected inflation.[citation needed] The ECB (unlike the Federal Reserve in the United States of America) does not have a second objective to sustain growth and employment.[citation needed]

Many national and corporate bonds denominated in euro are significantly more liquid and have lower interest rates than was historically the case when denominated in legacy currencies.[citation needed] While increased liquidity may lower the nominal interest rate on the bond, denominating the bond in a currency with low levels of inflation arguably plays a much larger role. A credible commitment to low levels of inflation and a stable debt reduces the risk that the value of the debt will be eroded by higher levels of inflation or default in the future, allowing debt to be issued at a lower nominal interest rate.

A new reserve currency

The euro is a major global reserve currency, sharing that status with the U.S. dollar (USD). The U.S. dollar still continues to enjoy its status as the primary reserve of most commercial and central banks.[50]

Since its introduction, the euro has been the second most widely-held international reserve currency after the U.S. dollar. The euro inherited this status from the German mark, and since its introduction, it has increased its standing, mostly at the expense of the dollar. The increase of 4.4% in 2002 is due to the introduction of euro banknotes and coins in January 2002.

The possibility of the euro's becoming the first international reserve currency is now widely debated among economists.[51] Former Federal Reserve Chairman Alan Greenspan gave his opinion in September 2007 that the euro could indeed replace the U.S. dollar as the world's primary reserve currency. He said it is "absolutely conceivable that the euro will replace the dollar as reserve currency, or will be traded as an equally important reserve currency."[52] Additionally, there has been suggestion that recent weakness of the US dollar might encourage parties to increase their reserves in euro at the expense of the dollar.[53] In the second term of 2007, euro as a reserve currency has reached a record level of 25.6% (a +0.8% increase from the year before)- at the expense of US dollar which dropped to 64.8% (a drop of 1.3% from the year before).[54] By the end of 2007, shares of euro increased to 26.4% as the dollar slumped to its lowest level since records began in 1999, 63.8%.[55]

Currency composition of official foreign exchange reserves (1965–2023, fourth quarters)
2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1995 1990 1985 1980 1975 1970 1965
US dollar 58.41% 58.52% 58.80% 58.92% 60.75% 61.76% 62.73% 65.36% 65.73% 65.14% 61.24% 61.47% 62.59% 62.14% 62.05% 63.77% 63.87% 65.04% 66.51% 65.51% 65.45% 66.50% 71.51% 71.13% 58.96% 47.14% 56.66% 57.88% 84.61% 84.85% 72.93%
Euro (until 1999 - ECU) 19.98% 20.40% 20.59% 21.29% 20.59% 20.67% 20.17% 19.14% 19.14% 21.20% 24.20% 24.05% 24.40% 25.71% 27.66% 26.21% 26.14% 24.99% 23.89% 24.68% 25.03% 23.65% 19.18% 18.29% 8.53% 11.64% 14.00% 17.46%
Japanese yen 5.70% 5.51% 5.52% 6.03% 5.87% 5.19% 4.90% 3.95% 3.75% 3.54% 3.82% 4.09% 3.61% 3.66% 2.90% 3.47% 3.18% 3.46% 3.96% 4.28% 4.42% 4.94% 5.04% 6.06% 6.77% 9.40% 8.69% 3.93% 0.61%
Pound sterling 4.84% 4.92% 4.81% 4.73% 4.64% 4.43% 4.54% 4.35% 4.71% 3.70% 3.98% 4.04% 3.83% 3.94% 4.25% 4.22% 4.82% 4.52% 3.75% 3.49% 2.86% 2.92% 2.70% 2.75% 2.11% 2.39% 2.03% 2.40% 3.42% 11.36% 25.76%
Canadian dollar 2.58% 2.38% 2.38% 2.08% 1.86% 1.84% 2.03% 1.94% 1.77% 1.75% 1.83% 1.42%
Chinese renminbi 2.29% 2.61% 2.80% 2.29% 1.94% 1.89% 1.23% 1.08%
Australian dollar 2.11% 1.97% 1.84% 1.83% 1.70% 1.63% 1.80% 1.69% 1.77% 1.59% 1.82% 1.46%
Swiss franc 0.23% 0.23% 0.17% 0.17% 0.15% 0.14% 0.18% 0.16% 0.27% 0.24% 0.27% 0.21% 0.08% 0.13% 0.12% 0.14% 0.16% 0.17% 0.15% 0.17% 0.23% 0.41% 0.25% 0.27% 0.33% 0.84% 1.40% 2.25% 1.34% 0.61%
Deutsche Mark 15.75% 19.83% 13.74% 12.92% 6.62% 1.94% 0.17%
French franc 2.35% 2.71% 0.58% 0.97% 1.16% 0.73% 1.11%
Dutch guilder 0.32% 1.15% 0.78% 0.89% 0.66% 0.08%
Other currencies 3.87% 3.48% 3.09% 2.65% 2.51% 2.45% 2.43% 2.33% 2.86% 2.83% 2.84% 3.26% 5.49% 4.43% 3.04% 2.20% 1.83% 1.81% 1.74% 1.87% 2.01% 1.58% 1.31% 1.49% 4.87% 4.89% 2.13% 1.29% 1.58% 0.43% 0.03%
Source: World Currency Composition of Official Foreign Exchange Reserves International Monetary Fund

A currency is attractive for international transactions when it demonstrates stability, a well-developed financial market to trade the currency, and acceptability to others. While the euro has made substantial progress, a few challenges undermine the ascension of the euro as a major reserve currency. Persistent excessive budget deficits of some member nations, economically weak new members, conservatism of financial markets, and inertia or path dependence are important factors keeping the euro as a junior international currency to the U.S. dollar. However, at the same time, the USD has increasingly suffered from a double deficit and has its own concerns.

As the euro becomes a new reserve currency, Eurozone governments will enjoy substantial benefits. Since money is an interest-free loan to the issuing government by the holder of the currency, foreign reserves act as a subsidy to the country minting the currency (see Seigniorage). However, reserve status also holds risks, as the currency may become overvalued, hurting European exporters and potentially exposing the European economy to influence by external factors who hold large quantities of euros.[citation needed]

Exchange rate

U.S. dollars per 1 euro 1999-2008
Year Lowest ↓ Highest ↑
Date Rate Date Rate
1999 03 Dec $1.0015 05 Jan $1.1790
2000 26 Oct $0.8252 06 Jan $1.0388
2001 06 Jul $0.8384 05 Jan $0.9545
2002 28 Jan $0.8578 31 Dec $1.0487
2003 08 Jan $1.0377 31 Dec $1.2630
2004 14 May $1.1802 28 Dec $1.3633
2005 15 Nov $1.1667 03 Jan $1.3507
2006 02 Jan $1.1826 05 Dec $1.3331
2007 12 Jan $1.2893 27 Nov $1.4874
2008 05 Sep $1.4247 15 Jul $1.5990
Source: Euro exchange rates in USD, ECB

Flexible exchange rates

The ECB targets interest rates rather than exchange rates and in general does not intervene on the foreign exchange rate markets, because of the implications of the Mundell-Fleming Model which suggest that a central bank cannot maintain interest rate and exchange rate targets simultaneously because increasing the money supply results in a depreciation of the currency. In the years following the Single European Act, the EU has liberalised its capital markets, and as the ECB has chosen monetary autonomy, the exchange rate regime of the euro is flexible, or floating. This explains why the exchange rate of the euro vis-à-vis other currencies is characterised by strong fluctuations. Most notable are the fluctuations of the euro versus the U.S. dollar, another free-floating currency. However this focus on the dollar-euro parity is partly subjective. It is taken as a reference because the euro competes with the dollar's role as reserve currency. The effect of this selective reference is misleading, as it gives observers the impression that a rise in the value of the euro versus the dollar is the effect of increased global strength of the euro, while it may be the effect of an intrinsic weakening of the dollar itself.

Exchange rate evolution of the euro compared to USD, JPY and GBP. Exchange rate at start is put to 1.
Green: in Jan-1999: €1 = $1.18 ; in Jul-2008: €1 = $1.57
Red: in Jan-1999: €1 = ¥133 ; in Jul-2008: €1 = ¥168
Blue: in Jan-1999: €1 = £0.71 ; in Jul-2008: €1 = £0.80

Against other major currencies

After the introduction of the euro, its exchange rate against other currencies fell heavily, especially against the U.S. dollar. From an introduction at US$1.18/€, the euro fell to a low of $0.8228/€ by 26 October 2000. After the appearance of the coins and notes in 1 January 2002 and the replacement of all national currencies, the euro then began steadily appreciating, and soon regained parity with the U.S. dollar, on 15 July 2002. Since December 2002, the euro has not again fallen below parity with the U.S. dollar but instead began an ascendency. On 23 May 2003, the euro surpassed its initial ($1.18) trading value for the first time. At the end of 2004, it reached $1.3668 (€0.7316/$) as the U.S. dollar fell against all major currencies. Against the U.S. dollar, the euro temporarily weakened in 2005, falling to $1.18 (€0.85/$) in July 2005, and was stable throughout the third quarter of 2005. In November 2005 the euro again began to rise steadily against the U.S. dollar, hitting one record low after another. On 15 July 2008, the euro rose to an all-time high of $1.5990 (€0.6254/$). In a reversal, in August of 2008 the euro began to drop against the U.S. dollar. In just two weeks the euro fell from its peak to $1.48 and by early September it had reached a yearly low of $1.425.[56] On 3 September 2008, the pound sterling fell to an all-time low of £0.8133 (€1.2296/£) against the euro.[57]

Worldwide use of the euro and the U.S. dollar:
  Eurozone
  External adopters of the euro
  Currencies pegged to the euro
  Currencies pegged to the euro w/ narrow band
  United States
  External adopters of the US dollar
  Currencies pegged to the US dollar
  Currencies pegged to the US dollar w/ narrow band

Currencies pegged to the euro

Main article: Currencies related to the euro

There are a number of non-EU currencies that were pegged to a European currency and are now currencies related to the euro: the Cape Verdean escudo, the Bosnia and Herzegovina convertible mark, the CFP franc, the CFA franc and the Comorian franc.

In total, the euro is the official currency in 15 states inside the European Union, and 5 states/territories outside the European Union. In addition, 23 states and territories have currencies that are directly pegged to the euro including 14 countries in mainland Africa, 3 EU members that will ultimately join the euro, 3 French Pacific territories, 2 African island countries and another Balkan country, Bosnia and Herzegovina.

Current EUR exchange rates
From Google Finance: AUD CAD CHF CNY GBP HKD JPY USD RUB CNY TWD
From Yahoo! Finance: AUD CAD CHF CNY GBP HKD JPY USD RUB CNY TWD
From XE.com: AUD CAD CHF CNY GBP HKD JPY USD RUB CNY TWD
From OANDA: AUD CAD CHF CNY GBP HKD JPY USD RUB CNY TWD

In the United Kingdom, although not a member of the Eurozone, many high-street banks report that as much as 90% of their international trade is conducted in euro. It is common therefore for them to use the euro as their 'core' currency on international business systems, only converting to Sterling for local accountancy purposes.[58]

Linguistic issues

Main article: Linguistic issues concerning the euro

The formal titles of the currency are "euro" for the major unit and "cent" for the minor (one hundredth) unit and for official use in most Eurozone languages; according to the ECB, all languages should use the same spelling for the nominative singular.[59] This may contradict normal rules for word formation in some languages, e.g. those where there is no eu diphthong. For English-language texts, there is a recommendation from the Directorate-General for Translation, the EU's translation service, that the natural plurals 'euros' and 'cents' should be used. [60]

See also

Notes and references

  1. ^ "www.eurodesigncontest.eu/emu.cfm?lang=en".
  2. ^ Number is a sum of estimated populations (as stated in their respective articles) of: all Eurozone members; all users of euro not part of Eurozone (whether officially agreed upon or not); all areas which use a currency pegged to the euro, and only the euro. — Please see detailed summation in article Eurozone
  3. ^ Atkins, Ralph (2006-12-27). "Euro notes cash in to overtake dollar". Financial Times. Retrieved 2007-05-04.
  4. ^ "CIA — The World Factbook — Rank Order — GDP (purchasing power parity)". CIA. 2008-03-20. Retrieved 2008-04-06.
  5. ^ "Weak dollar costs U.S. economy its No. 1 spot". Reuters. 2008-03-14. Retrieved 2008-03-16. {{cite web}}: Text "Reuters" ignored (help); Text "U.S." ignored (help)
  6. ^ "Weak Dollar Costs U.S. Economy Its World No. 1 Spot". New York Times. 2008-03-14. Retrieved 2008-03-16.
  7. ^ "U.S. No Longer World's Largest Economy". About.com. Retrieved 2008-03-16.
  8. ^ "The €uro: Our Currency". Economic and Financial Affairs. Retrieved 2007-05-04.
  9. ^ "TARGET". European Central Bank. Retrieved 2007-10-25.
  10. ^ Connolly, Kate (2001-12-23). "Inventor who coined euro sign fights for recognition". The Observer. Berlin: Guardian Unlimited.
  11. ^ European Commission - Economic and Financial Affairs - How to use the euro name and symbol
  12. ^ "The €uro: Our Currency". europa.eu. Retrieved 2007-10-25.
  13. ^ Siebert, Jürgen (2002). "The Euro: From Logo to Letter". Font Magazine (2).
  14. ^ "Frequently Asked Questions". europa.eu. Retrieved 2007-10-25.
  15. ^ "Use of the euro". European Central Bank. Retrieved 2020-08-15.
  16. ^ "CNNMoney.com".
  17. ^ "Agreements on monetary relations (Monaco, San Marino, the Vatican and Andorra)". Retrieved 2007-05-11.
  18. ^ "SBB - More at the station - Automatic ticket machine".
  19. ^ "Sluggish Europe proves Brown's case on currency". The Guardian. Guardian News and Media Limited. 2004-12-20. Retrieved 2008-02-07.
  20. ^ a b "Foreign exchange operations". European Central Bank. Retrieved 12 July 2020.
  21. ^ a b "Convergence Report". European Central Bank. Retrieved 2 March 2024.
  22. ^ "EUROPEAN ECONOMY 4/2014: Convergence Report 2014" (PDF). European Commission. 4 June 2014.
  23. ^ The Bulgarian National Bank pursues its primary objective of price stability through an exchange rate anchor in the context of a Currency Board Arrangement (CBA), obliging them to exchange monetary liabilities and euro at the official exchange rate 1.95583 BGN/EUR without any limit. The CBA was introduced on 1 July 1997 as a 1:1 peg against German mark, and the peg subsequently changed to euro on 1 January 1999.[22]
  24. ^ "Bulgaria views Eurozone entry by 2025 as realistic". Euractiv. 18 October 2023. Retrieved 6 February 2024.
  25. ^ "Денков: Целта на България е влизане в еврозоната на 1 януари 2025 година" ["Denkov: Bulgaria's goal is to enter the Eurozone on 1 January 2025"]. manager.bg (in Bulgarian). 20 January 2024. Retrieved 24 January 2024.
  26. ^ "PM Denkov Confirms: Bulgaria Aims to Join Eurozone on January 1, 2025". Novinite. 19 January 2024. Retrieved 15 March 2024.
  27. ^ "Czech Government to Evaluate Merits of Joining 'Euro Waiting Room'". Reuters. 7 February 2024. Retrieved 7 February 2024.
  28. ^ "Denmark's Zeitenwende". European Council on Foreign Relations. 7 June 2022. Retrieved 25 February 2024.
  29. ^ "Regeringsgrundlag December 2022: Ansvar for Danmark (Government manifest December 2022: Responsibility for Denmark)" (PDF) (in Danish). Danish Ministry of Finance. 14 December 2022.
  30. ^ "Orbán: Hungary will not adopt the euro for many decades to come". Hungarian Free Press. 3 June 2015.
  31. ^ Smarandache, Maria (20 March 2023). "Romania wants to push euro adoption by 2026". Euractiv.com. Retrieved 27 February 2024.
  32. ^ Smarandache, Maria (24 March 2023). "Iohannis: No 'realistic' deadline for Romania to join eurozone". Euractiv.com. Retrieved 29 February 2024.
  33. ^ Balázs Márton (20 March 2023). "Románia előrébb hozná az euró bevezetését" [Romania would advance the introduction of the euro]. Telex.hu (in Hungarian). Retrieved 29 February 2024.
  34. ^ "DN Debatt Repliker. 'Folkligt stöd saknas för att byta ut kronan mot euron'" [DN Debate Replicas. "There is no popular support for exchanging the krona for the euro"]. Dagens Nyheter (in Swedish). 3 January 2022. Retrieved 6 May 2022.
  35. ^ Sweden, while obliged to adopt the euro under its Treaty of Accession, has chosen to deliberately fail to meet the convergence criteria for euro adoption by not joining ERM II without prior approval by a referendum.
  36. ^ "Government approved the National Euro Changeover Plan". Bank of Slovakia. 2005-07-07.
  37. ^ "Slovakia given euro green light". BBC. 2008-05-07.
  38. ^ "Adoption of the euro in Lithuania". Bank of Lithuania. Retrieved 2007-02-03.
  39. ^ "Alcohol and tobacco tax to rise in Estonia next year". Helsingin Sanomat. 2007-05-25. Retrieved 2007-07-30. {{cite news}}: Check date values in: |date= (help)
  40. ^ "Bulgaria's budget of reform". The Sofia Echo. 2007-11-30. Retrieved 2008-02-06. {{cite news}}: Check date values in: |date= (help)
  41. ^ "Latvia might adopt Euro between 2010 and 2012 - Minister". Forbes. 2006-12-04. Retrieved 2007-01-01.
  42. ^ "Finance Ministry sees 2012 as realistic for euro adoption". Prague Daily Monitor. 2007-02-22. Retrieved 2007-02-28.
  43. ^ "Bank targets 2013 as Latvia's 'E-day'".
  44. ^ "Polish Fin Min: Setting Euro Target Date Improper Strategy".
  45. ^ "Analysts Poll - Euro entry seen delayed for some countries". www.finance.cz. Retrieved 2008-01-25.
  46. ^ "Fifth Report on the Practical Preparations for the Future Enlargement of the Euro Area" (PDF). Commission of the European Communities. 2007-07-16. Retrieved 2007-10-25.
  47. ^ "Slovakia confirmed as ready for Euro". euobserver.com. Retrieved 2008-05-07.
  48. ^ A Plan for a European Currency, 1973 by Mundell
  49. ^ Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market
  50. ^ http://www.imf.org/external/np/sta/cofer/eng/cofer.pdf
  51. ^ "Will the Euro Eventually Surpass the Dollar As Leading International Reserve Currency?" (PDF).
  52. ^ "Reuters". Euro could replace dollar as top currency - Greenspan. Retrieved September 17. {{cite web}}: Check date values in: |accessdate= (help); Unknown parameter |accessyear= ignored (|access-date= suggested) (help)
  53. ^ ""American Gangster's Wad of Euros Signals U.S. Decline"".
  54. ^ ""Euro Rises on Speculation ECB's Trichet to Signal Higher Rates"".
  55. ^ Dollar's Share of Currency Reserves Falls, IMF Says (Update1) Bloomberg
  56. ^ ECB official rates against the U.S. dollar from ecb.eu
  57. ^ ECB official rates against the British pound from ecb.eu
  58. ^ Nina, Koeppen (June 26, 2007). "Euro's Role Slips in World Markets". The Wall Street Journal. Retrieved 2007-08-08. {{cite web}}: Check date values in: |date= (help)
  59. ^ "European Central Bank, Covergence report May 2007" (PDF). The euro is the single currency of the Member States that have adopted it. To make this singleness apparent, Community law requires a single spelling of the word "euro" in the nominative singular case in all Community and national legislative provisions, taking into account the existence of different alphabets.
  60. ^ For example, see European Commission, Directorate General for Translation: English Style Guide section 20.8 "The euro. Like 'pound', 'dollar' or any other currency name in English, the word 'euro' is written in lower case with no initial capital and, where appropriate, takes the plural 's' (as does 'cent')." European Commission Directorate-General for Translation - English Style Guide.

Further reading

  • Baldwin, Richard and Charles Wyplosz, The Economics of European Integration, New York: McGraw Hill, 2004.
  • European Commission, High Level Task Force on Skills and Mobility - Final Report, 14 December 2001.

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