The Euro: the Second Most Traded Currency in the World

Information verified correct on December 6th, 2016

If you’re looking for information surrounding the euro, its history or its value, here’s the help you need.

The euro (EUR, €) is a common currency shared by 19 European Union (EU) member states. Introduced in 1999, over 337.5 million EU citizens now use the euro and it is the second most traded currency in the world. Not all EU member states use the euro as their official currencies, with the United Kingdom and Denmark employing opt-out clauses that exempt them from participation.

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Member states of the EU that have adopted the euro include Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain. Four other European nations use the euro as their official currency, as do overseas territories of EU members.

The European Central Bank (ECB), along with national central banks of euro area nations, hold responsibility for eurozone’s monetary policy and together it makes the Eurosystem. Individual national authorities retain control over structural and fiscal policies, but they have to work in tandem to attain common objectives surrounding aspects like stability and growth. The Stability and Growth pact contains previously agreed upon rules about fiscal discipline and it serves as a vital coordination structure.

Value and exchange rates of the euro

Upon the introduction of the euro, conversions between currencies of participating countries to the euro relied on a triangulation process. The value of the euro in terms of exchange rates of currencies entering the euro, when they did, is pictured below.

Currency CodeRate
Austrian schillingATS13.7603
Belgian francBEF40.3399
Cypriot poundCYP0.585274
Estonian kroonEEK15.6466
German markDEM1.95583
Finnish markkaFIM5.94573
French francFRF6.55957
Greek drachmaGRD340.75
Irish poundIEP0.787564
Italian liraITL1,936.27
Lithuanian litasLTL3.4528
Luxembourgish francLUF40.3399
Latvian latsLVL0.702804
Monégasque francMCF6.55957
Maltese liraMTL0.4293
Dutch guilderNLG2.20371
Portuguese escudoPTE200.482
Slovenian tolarSIT239.64
Slovak korunaSKK30.126
Spanish pesetaESP166.386
Sammarinese liraSML1,936.27
Vatican liraVAL1,936.27

The Council of the European Union relied on recommendations from the European Commission to arrive at the rates mentioned above and these were set so one euro would equal one European Currency Unit (ECU). The ECU was not a currency, but an accounting unit that the EU used based on currencies of member states.

The euro, since its introduction, has become the second most held international reserve currency, which in mainly built on the Deutsche Mark’s status of being in the same spot. The share of its currency reserve stood at 18% in 1999, and increased to 27% by 2008. During the same period, the US dollar’s share fell 7%, and the Japanese yen’s share dropped by 3.1%.

The International Monetary Fund views the euro as an overweight reserve currency in developing and emerging economies, and as underweight in advanced economies.

Over 20 countries and territories outside the eurozone peg their currencies against the euro, which include 15 African nations, three French Pacific territories, as well as Bosnia and Herzegovina, Bulgaria and Macedonia. By 2013, more than 180 million people in Africa, 27 million outside the eurozone in Europe, and around 545,000 in the Pacific islands used currencies pegged to the euro.

The ECB works in targeting interest rates as opposed to exchange rates, and it tends not to interfere in forex markets. After the implementation of the Single European Act, EU worked in liberalising capital markets, and since the ECB opted for monetary autonomy, the euro follows a floating exchange rate system.

Since ECB maintained noticeably low interest rates and succeeded in restricting the supply of money for around a decade, the euro went on the become more expensive when compared to the region’s main trading partners. This, though, changed in 2010, when value of the euro began to drop. In 2008, the euro valued at USD 1.60, and it dropped to USD 1.04 by 2015.

Value of the euro when traded against other major currencies has seen significant changes since its introduction. It got to its lowest point in 2000, and its highest historical point came in 2008. While the global financial crisis saw the euro dropping in value, it regained lost ground later. By November 2011, the euro traded at almost two percent higher on the year, getting to the level it was at before the financial crisis began in 2007.

The table below takes you through the value of the euro against some major currencies since its introduction in 1999.

19992000200520102015
US dollar1.15941.01251.31411.42811.1666
Pound sterling0.70190.61810.69830.88370.7682
Canadian dollar1.76171.46591.60571.49021.4034
Chinese Renminbi yuan9.59838.383010.86279.73987.1516
Indian rupee49.263544.066857.309265.695572.5327
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History of the euro

Provisions in the 1992 Maastricht Treaty led to the creation of the euro, and as per this treaty the United Kingdom and Denmark received exemption from moving towards a monetary union. Prominent economists partook in creating the euro, which included Neil Dowling, Fred Arditti, Robert Mundell, Wim Duisenberg, Robert Tollison and Tommaso Padoa-Schioppa.

While the name ‘euro’ came into effect as early as December 1995, introduction of the currency happened only on 1 January 1999. At this point, the use of the euro limited to non-physical forms like electronic transfers and traveller’s cheques. Independent currencies of participating nations ceased to exist, but people could continue using coins and notes from older currencies as legal tender until 2002. Euro notes and coins saw light of day for the first time in January 2002. People could exchange their coins and notes from older currencies until the end of February 2002.

National central banks continued accepting old currencies even after they stopped serving as legal tender, and while some national banks stopped doing this after a while, some continue to accept older currency even now.

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Coins and banknotes of the euro

The euro comprise of 100 cents, often referred to as euro cents to distinguish them from other currencies. You can get coins in denominations of €2, €1, 50c, 20c, 10c, 5c, 2c and 1c. Banknotes come in denominations of €5, €10, €20, €50, €100, €200 and €500.

All coins in circulation come with a common side that shows that denomination, along with a map in the background. The other side is the national side, which shows images chosen by countries that issue the coins. However, you can use all such coins across all EU states that have adopted the euro.

2 Euros1 Euro40 Cent Euro
2-euro1-euro50_euro_cent

Every banknote comes with its own distinct colour, and relates to an artistic period from Europe’s architectural past. While the fronts of these notes come with gateways or window, the back makes use of bridges, as a symbol to denote links between member states.

100 Euro200 Euro500 Euro
100_euro200_euro500_euro
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