Euro history

Euro is the second most traded currency in the world after the U.S. dollar and the second largest reserve currency. Having more than €751 billion in circulation, the Eurozone is the second largest economy in the world.

The euro was introduced as an accounting currency on 1 January 1999 replacing the former European Currency Unit (ECU). The euro banknotes and coins started circulating on 1 January 2002 and now are used daily by over 327 million Europeans.

Euro is the official currency of 16 of the 27 states member of the European Union (EU). The European Union states that adopted euro as official currency are France, Germany Spain, Portugal, Italy, Austria, Belgium, Netherland, Cyprus, Greece, Ireland, Finland, Luxembourg, Malta, Slovakia and Slovenia. Outside the Eurozone other states adopted the euro as sole official currency: Kosovo, Montenegro, Monaco, Andorra, San Marino and Vatican, all in Europe and overseas territories like Mayotte, Saint Pierre and Miquelon, Akrotiri and Dhekelia, Saint Barthélemy and Saint Martin.

Inside European Union five states pegged their currencies to euro: Bulgaria, Estonia, Denmark, Lithuania and Latvia, meanwhile other 23 states outside the Eurozone have decided to do the same. One of these is a Balkan country (Bosnia and Herzegovina), two African island states, three French Pacific territories and 14 are African countries.

The euro monetary policy is set by the European Central Bank, based in Frankfurt.

The Maastricht Treaty signed in 1992 obligates the European Union member states to adopt euro as official currency conditioned by meeting some strict criteria. These criteria are: a low inflation rate, a budget deficit of less than 3% of their GDP, a debt ratio of less than 60% of GDP, low inflation and interest rates close to the EU average. The United Kingdom and Denmark requested and obtained exemption for adopting the euro as official currency.

Removal of the exchange rate risks and elimination of the exchanging currency costs are the biggest advantages of adopting a single currency in the European Union. Another consequence of the common European currency is that the differences between the price levels in different countries should decrease because of the “law of one price”.

In 1999 the euro was introduced at US$1.18/€ exchange rate and by October 2000 reached a minimum of $0.8228/€. After banknotes and coins started circulating and more countries adopted euro the currency begins to appreciate and since December 2002 never went lower than the U.S. dollar parity. In 2003, on 23 May euro surpassed its initial trading value (US$1.18/€) for the first time and after that continuities to appreciate reaching on 15 July 2008 the all-time highest rate against the U.S. dollar of $1.5990. In the context of the global financial crisis euro keeps a high exchange rate of 1.3990 U.S. dollar.