Euro – Currency Overview

• ISO Code: EUR
• Symbol: €
• Subunit: 1/100 Eurocent
• Inflation: 3.2%
• Nickname: -----

Historical Overview

The euro is the official currency of the European Union (EU), although used in only 15 of the EU's member states, collectively known as the Eurozone. With over €610 billion in circulation in December 2006, the euro surpassed the U.S. dollar as the currency with the highest combined circulating cash value in the world. The Euro is divisible into 100 Euro-Cents, and is issued by the European Central Bank (ECB), though banknotes and coins are minted by the central banks of each member country.

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The euro was first launched in the world financial markets as an accounting currency in 1999 and introduced as physical coins and banknotes only on 1 January 2002. It replaced the short lived European Currency Unit (ECU) at the exchange rate of 1:1.

Not all EU members have chosen to take on the new currency despite the fact that all EU members have pledged to adopt the euro sometime in the future as part of the 1992 Maastricht Treaty. Both the United Kingdom and Denmark have managed to arrange exemptions from this commitment. Sweden also avoided the requirement to join the Eurozone by failing to meet membership criteria.

Conversely, several non EU members chose to adopt the Euro as their currency thus becoming members of the Eurozone. The European microstates of Monaco, Vatican City, and San Marino made the switch in order to maintain currency unions with member states. Montenegro, Andorra, and Kosovo similarly adopted the euro without being EU members.

Current Global Status

The euro is the second most widely-held international reserve currency after the U.S. dollar, with 26.4% as of 2007. Its status was inherited from the German mark, however since its introduction the Euro has increased its standing, and the possibility of the Euro superseding the dollar to become the number one international reserve currency is now widely disputed among economists. Many opinions hold that the recent plummet of the US dollar might motivate parties to increase their euro reserves at the expense of the dollar.

Against the U.S Dollar

At the introduction of the euro, its exchange rate fell heavily against all major currencies, especially against the U.S. dollar, and only after the issue of the coins and notes in January 2002 did the euro begin steadily appreciating. Soon the euro reached parity with the U.S. dollar and has not fallen below ever since, instead embarking on an unprecedented ascendancy. It surpassed its initial trading value of $1.18 in May of 2003 and at the end of 2004 it reached a high of $1.3668 as the U.S. dollar plummeted against all major currencies, apparently as the result of the double deficit in US accounts. On November 2005, after a relatively stable year, the dollar began yet another steady decline hitting one record low after another. The U.S. dollar fell to an all-time low of $1.5940 against the euro on 23 April 2008.

Against the Pound Sterling

In the past the pound tended move together with the Euro. This correspondence however has been weakening steadily since 2006, with the pound consistently on the decline. On 16 April 2008, the pound sterling hit an all-time low of £0.80610 against the euro.

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