The Euro: the Second Most Traded Currency in the World
If you’re looking for information surrounding the euro, its history or its value, you can find it here.
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 belonging to EU members.
The European Central Bank (ECB) along with the 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.
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 is 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 of 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, the EU worked in liberalizing capital markets, and since the ECB opted for monetary autonomy, the euro follows a floating exchange rate system.
Since the 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. However, this changed in 2010 when the value of the euro began to drop. In 2008, the euro was valued at US$1.60, and it dropped to US$1.04 by 2015.
The 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.
|Chinese Renminbi yuan||9.5983||8.3830||10.8627||9.7398||7.1516|
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 was 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 to this day.
Coins and banknotes of the euro
One euro is comprised 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 Euros||1 Euro||50 Cent Euro|
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 Euro||200 Euro||500 Euro|
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