euro: Definition from Answers.com

Euro
Banknotes Coins
ISO 4217 Code	EUR (num. 978)
Official user(s)	Eurozone 5 with formal agreement
Unofficial user(s)	6 without formal agreement
Inflation	2.1%
Source	ECB, November 2008
Method	HICP
Pegged by	10 currencies
Symbol	€
Nickname	The single currency
Plural	See Euro linguistic issues
Coins
Freq. used	1, 2, 5, 10, 20, 50 cent, €1, €2 unless otherwise stated as rarely used
Banknotes
Freq. used	€5, €10, €20, €50, €100
Rarely used	€200, €500
Central bank	European Central Bank
Website	www.ecb.eu
Printer	printers
Website	websites

The euro (currency sign: €; currency code: EUR) is the official currency of 16 out of 27 member states of the European Union (EU). The states, known collectively as the Eurozone are: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain and in many others it is the de facto currency. The currency is also used in five further countries and territories with formal agreements and six other countries without such agreements. Hence it is the single currency for over 327 million Europeans.^[1] Including areas using currencies pegged to the euro, the euro directly affects close to 500 million people worldwide.^[2] As of November 2008, with more than €751 billion in circulation^[3] (equivalent to about USD 953 billion^[4]), the euro is the currency with the highest combined value of cash in circulation in the world, having surpassed the U.S. dollar (USD).^[5] Based on IMF estimates of 2008 GDP and purchasing power parity among the various currencies, the Eurozone is the second largest economy in the world.^{[6][7][8] [9]}

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. Euro gives the EU’s citizens a tangible symbol of their European identity, of which they can be increasingly proud as the euro area expands and multiplies these benefits for its existing and future members.

The Maastricht Treaty of 1992 obliged all then-current members of the EU to adopt the euro upon meeting certain monetary and budgetary requirements, however, not all states have done so. The United Kingdom and Denmark negotiated exemptions.^{[10][dead link]} Sweden turned down the euro in a 2003 referendum, and has circumvented the obligation to adopt the euro by not meeting the monetary and budgetary requirements. All nations that have joined the EU since the 1993 implementation of the Maastricht Treaty have pledged to adopt the euro in due course. 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 euro is divided into 100 cents (sometimes referred to as euro-cents, especially when distinguishing them from other currencies). Although it departs from usual English practice, euro and cent are used both for singular and plural in existing legislation.^[11] Otherwise, normal English plurals are recommended and used.^[12]

All circulating coins (including the €2 commemorative coins) have a common side showing the denomination or value, and a map in the background. For the denominations except the 1, 2 and 5 cent coins that map only showed the 15 member states which were members when the Euro was introduced. Beginning in 2007 or 2008 (depending on the country) the old map is being replaced by a map of Europe also showing countries outside the Union like Norway. All common sides were designed by Luc Luycx. The coins also have a national side showing an image specifically chosen by the country that issued the coin. Euro coins from any member state may be freely used in any nation which has adopted the euro.

The coins are issued in €2, €1, 50-cent, 20-cent, 10-cent, 5-cent, 2-cent, and 1-cent denominations. In order to avoid the use of the two smallest coins, some cash transactions are rounded to the nearest five cents in the Netherlands and in Finland (in the latest by law).^[13]

Commemorative coins with €2 face value have been issued with changes to the design of the national side of the coin. These include both commonly issued coins, such as the €2 commemorative coin for the fiftieth anniversary of the signing of the Treaty of Rome, and nationally issued coins, such as the coin to commemorate the 2004 Summer Olympics issued by Greece. These coins are legal tender throughout the Eurozone. Collector’s coins with various other denominations have been issued as well, but these are not intended for general circulation, and they are legal tender only in the member state that issued them.^[14]

The design for the euro banknotes have common designs on both sides. The design was created by Robert Kalina.^[15] 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 of the note features windows or gateways while the back 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-EU transfers in euro shall be considered domestic and bear the corresponding domestic transfer costs; EC Regulation 2560/2001.^[16]

It is worth noting that this also includes all member States of the EU, even those outside the eurozone providing the transactions are carried out in euro.^[17] This is also 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.^[18]

Currency sign

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.^[19]

“	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[20]

The European Commission also specified a euro logo with exact proportions and foreground/background colour tones.^[21] 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.^[22] 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.^[23]

Economic and monetary union

Yielded currencies of the Eurozone  v • d • e 

Currency	Code	Rate	Fixed on	EMU III
Austrian schilling	ATS	13.7603	31 December 1998	1999
Belgian franc	BEF	40.3399	31 December 1998	1999
Dutch guilder	NLG	2.20371	31 December 1998	1999
Finnish markka	FIM	5.94573	31 December 1998	1999
French franc	FRF	6.55957	31 December 1998	1999
German mark	DEM	1.95583	31 December 1998	1999
Irish pound	IEP	0.787564	31 December 1998	1999
Italian lira	ITL	1936.27	31 December 1998	1999
Luxembourg franc	LUF	40.3399	31 December 1998	1999
Portuguese escudo	PTE	200.482	31 December 1998	1999
Spanish peseta	ESP	166.386	31 December 1998	1999
Greek drachma	GRD	340.750[24]	19 June 2000	2001
Slovenian tolar	SIT	239.640[25]	11 July 2006	2007
Cypriot pound	CYP	0.585274[26]	10 July 2007	2008
Maltese lira	MTL	0.429300[27]	10 July 2007	2008
Slovak koruna	SKK	30.1260[28]	8 July 2008	2009

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.

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,^[29] and Slovakia on 1 January 2009.^[30]

Eurozone

• The euro is the sole currency in Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. These 16 countries together are often referred to as the Eurozone or the euro area, and, more informally, "euroland" or the "eurogroup". Beyond the area covered by the map, the euro is the legal currency of the French overseas possessions of French Guiana, Réunion, Saint-Pierre et Miquelon, Guadeloupe, Martinique, Saint-Barthélemy, Saint Martin, Mayotte, and the uninhabited Clipperton Island and the French Southern and Antarctic Lands; the Portuguese autonomous regions of the Azores and Madeira; and the Spanish Canary Islands.
• By virtue of some bilateral agreements,^[31] the European microstates of Monaco, San Marino, and Vatican City mint their own euro coins on behalf of the European Central Bank. They are, however, severely limited in the total value of coins they may issue.
• Andorra, Montenegro, Kosovo, and Akrotiri and Dhekelia adopted the foreign euro as their legal currency for movement of capital and payments without participation in the ESCB or the right to mint coins. Andorra is also negotiating a monetary agreement similar to that of the microstates above.
• Several possessions and former colonies of EU states have currencies pegged to the euro. These are French Polynesia, New Caledonia, Wallis and Futuna (the CFP franc); Cape Verde; the Comoros; and fourteen nations of Central and West Africa (the CFA franc). See Currencies related to the euro.
• Although not legal tender in Denmark and the United Kingdom, the euro is accepted in some stores throughout both countries, particularly international stores in large cities, and shops in Northern Ireland near the border with the Republic of Ireland, where the euro is the official currency. Similarly, the euro is widely accepted in Switzerland, even by official boards, such as the Swiss Railways.^[32]

Future prospects

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. The swedish polls for euro adoption have shown a stable support for the "no" alternative. However, it has dramatically changed recently, with the latest one from December 2008 showed 44% yes, 48% no, 7% uncertain.^[33]

• The United Kingdom has an opt-out from eurozone membership under the Maastricht treaty and is not obliged to join the euro. While the official position of the Brown 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.^[34] 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 to a mismatch between its benchmark currency parity and its economic performance, and the pound is not part of ERM II.

Post-2004 EU members

Remaining currencies on track to be migrated  v • d • e 

Currency	Code	Central Rate	Conv goal
Estonian kroon	EEK	15.6466	1 January 2011
Polish złoty	PLN	—	1 January 2012[35][36]
Latvian lats	LVL	0.702804	1 January 2012
Hungarian forint	HUF	—	1 January 2012
Lithuanian litas	LTL	3.45280	1 January 2013[37]
Romanian leu	RON	—	1 January 2014
Czech koruna	CZK	—	1 January 2015[38]
Bulgarian lev	BGN	1.95583[39]	1 January 2015[40][41]
Danish krone	DKK	7.46038	—[42]
Swedish krona	SEK	—	—

In 2009, eight new EU member states have a currency other than the euro; however, they all 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:

• 1 January 2011 for Estonia^[43]
• 1 January 2012 for Bulgaria,^[44] Latvia,^[45] Poland.^[46][47][48]
• 1 January 2013 for Lithuania^[49]
• 1 January 2014 for Romania^{[citation needed]}
• 1 January 2015 for Czech Republic^[50]

Lithuania and Estonia's entry was planned for 1 January 2007 but was postponed due to their unacceptably high inflation rates. 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 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 goal is 2015.^[50] Analysts say Hungary will adopt the euro around 2014.

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.^[51]

Denmark is about to ratify its adoption of the Euro currency via a referendum which should be held in 2011, the turmoil of the recent 2008 Financial Crisis brought dire strains to its national currency, even with its narrow floatation band in respect to the Euro. More than half of Danish citizes are favorable to the adoption of the common European currency which has shielded the continental economies from the harshest effects of the crisis.^{[citation needed]}

On 10 September 2008, speaking at the launch of an economic forum in a Polish resort of Krynica-Zdrój, Polish Prime Minister Donald Tusk announced the ruling government's objective to join the Eurozone in 2012, by holding a referendum in 2010 and been approved by the European Central Bank in 2011.^[46][47][48] However, since the Polish constitution will need to change first^[52] and they will have to join the ERM 2 before second quarter 2009,^[53] this target date is still very aggressive.

The Fifth Report on the Practical Preparations for the Future Enlargement of the Euro Area^[54] stated on 16 July 2007 that only Cyprus, Malta (both of which adopted the euro in January 2008), Slovakia (adopted in January 2009) and Romania (2014) had currently set official target dates for adopting the euro.

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

Economics

Optimal 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.^[55]

Transaction costs and risks

The most obvious benefit of adopting a single currency is to remove the cost of exchanging currency, theoretically allowing businesses and individuals to consummate previously unprofitable trades. For consumers, 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 that invest or trade outside their own currency zones. Companies that hedge against this risk will no longer need to shoulder this additional cost. This 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.^[56]

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 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.

Euro as major international 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.^[57]

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.^[58] 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."^[59] 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.^[60] In the second term of 2007, euro as a reserve currency had 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).^[61] 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%.^[62]

Currency composition of official foreign exchange reserves

	'95	'96	'97	'98	'99	'00	'01	'02	'03	'04	'05	'06	'07
US dollar	59.0%	62.1%	65.2%	69.3%	70.9%	70.5%	70.7%	66.5%	65.8%	65.9%	66.4%	65.7%	63.9%
Euro					17.9%	18.8%	19.8%	24.2%	25.3%	24.9%	24.3%	25.2%	26.5%
German mark	15.8%	14.7%	14.5%	13.8%
Pound sterling	2.1%	2.7%	2.6%	2.7%	2.9%	2.8%	2.7%	2.9%	2.6%	3.3%	3.6%	4.2%	4.7%
Japanese yen	6.8%	6.7%	5.8%	6.2%	6.4%	6.3%	5.2%	4.5%	4.1%	3.9%	3.7%	3.2%	2.9%
French franc	2.4%	1.8%	1.4%	1.6%
Swiss franc	0.3%	0.2%	0.4%	0.3%	0.2%	0.3%	0.3%	0.4%	0.2%	0.2%	0.1%	0.2%	0.2%
Other	13.6%	11.7%	10.2%	6.1%	1.6%	1.4%	1.2%	1.4%	1.9%	1.8%	1.9%	1.5%	1.8%
	Sources: 1995-1999, 2006-2007 IMF: Currency Composition of Official Foreign Exchange ReservesPDF (80 KB) Sources: 1999-2005, ECB: The Accumulation of Foreign ReservesPDF (816 KB)           v • d • e

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

Flexible exchange rates

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	27 Oct	$1.2460	15 Jul	$1.5990
Source: Euro exchange rates in USD, ECB

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.

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 on 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 high after another. On 15 July 2008, the euro rose to an all-time high of $1.5990 (€0.6254/$). In a reversal, in August 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 late October it reached a two and a half year low below $1.25.^[63] On 29 December 2008, the pound sterling fell to an all-time low of £0.97855 (€1.0219/£) against the euro.^[64]

• Current and historical exchange rates against 29 other currencies (European Central Bank)
• Current dollar/euro exchange rates (BBC)
• Historical exchange rate from 1971 until now

Currencies pegged to the euro

Several non-EU currencies that were pegged to a European currency are now pegged 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 16 states inside the European Union, and 5 states/territories outside the European Union. Several other EU members will ultimately join the euro. In addition, 23 states and territories have currencies that are directly pegged to the euro including 14 countries in mainland Africa, 2 African island countries, 3 French Pacific territories and another Balkan country, Bosnia and Herzegovina.

Current EUR exchange rates

Though the United Kingdom is not in 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.^{[65][citation needed]}

Linguistic issues

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.^[66] 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.^[67]

See also

Notes and references

Further reading

External links

Official websites

• The euro – Europa
  • English style guidePDF (665 KB)
• European Central Bank
  • Security features
  • Exchange rates

Other

• The Euro Information Site – ibiblio
• The symbolic power of the euro - Bundeszentrale für politische Bildung