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The euro (€) is the official currency of 16 of the 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. The currency is also used in a further five European countries, with and without formal agreements and is consequently used daily by some 327 million Europeans. Over 175 million people worldwide use currencies which are pegged to the euro, including more than 150 million people in Africa.
The euro is the second largest reserve currency and the second most traded currency in the world after the U.S. dollar. As of November 2008, with more than €751 billion in circulation, the euro is the currency with the highest combined value of cash in circulation in the world, having surpassed the U.S. dollar. 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.
The name euro was officially adopted on 16 December 1995. The euro was introduced to world financial markets as an accounting currency on 1 January 1999, replacing the former European Currency Unit (ECU) at a ratio of 1:1. Euro coins and banknotes entered circulation on 1 January 2002.
The euro was established by the provisions in the 1992 Maastricht Treaty. In order to participate in the currency, member states are meant 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 per their request 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.) The name euro was devised on 4 August 1995 by Germain Pirlot, a Belgian esperantist and ex-teacher of French and history, and officially adopted in Madrid on 16 December 1995.
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. They were set so that one European Currency Unit (ECU) 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. 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.
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. 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 euro 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 where the mark officially ceased to be legal tender on 31 December 2001, though the exchange period lasted for two months more. Even after the old currencies ceased to be legal tender, they continued to be accepted by national central banks for periods ranging from several years to forever (the latter 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.
Direct and indirect usage
Further information: Eurozone, International status and usage of the euro, and Enlargement of the eurozoneLinguistic issues
Main article: Linguistic issues concerning the euroThe 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. This may contradict normal rules for word formation in some languages; e.g., those where there is no eu diphthong. For non-legally binding texts in English, the European Commission's Directorate-General for Translation recommends that the plural forms euros and cents should be used when appropriate.
See also
Notes and references
- ^ Official documents and legislation refer to the euro as "the single currency".
"Council Regulation (EC) No 1103/97 of 17 June 1997 on certain provisions relating to the introduction of the euro". Official Journal L 162 , 19/06/1997 P. 0001 - 0003. European Communities. 1997-06-19. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31997R1103:EN:HTML. Retrieved on 2009-04-01.
This term is sometimes adopted by the media(Google hits for the phrase) - ^ "What is EMU?". Eurodesigncontest.eu. http://www.eurodesigncontest.eu/emu.cfm?lang=en. Retrieved on 23 November 2008.
- ^ http://www.bis.org/publ/rpfxf07t.pdf
- ^ This figure is sourced in dollars and converted into euro based on the exchange rate for 28 November 2008 of €1 = US$1.2694: the European Central Bank (16 December 2008). "Banknotes and coins circulation". http://www.ecb.int/stats/euro/circulation/html/index.en.html. Retrieved on 1 January 2009. "Historic exchange rates". http://www.x-rates.com/cgi-bin/hlookup.cgi. Retrieved on 1 January 2009.
- ^ Atkins, Ralph (2006-12-27). "Euro notes cash in to overtake dollar". Financial Times. http://www.ft.com/cms/s/18338034-95ec-11db-9976-0000779e2340.html. Retrieved on 4 May 2007.
- ^ "Report for Selected Country Groups and Subjects". Imf.org. 2006-09-14. http://www.imf.org/external/pubs/ft/weo/2008/02/weodata/weorept.aspx?sy=2008&ey=2008&scsm=1&ssd=1&sort=country&ds=.&br=1&c=163&s=PPPGDP&grp=1&a=1&pr.x=63&pr.y=7. Retrieved on 5 January 2009."); -->
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