What is the Euro?

The Euro (€) is the official currency of 20 countries within the European Union (EU). These countries are collectively known as the Euro Area or Eurozone. This relatively young currency has simplified things like trade, travel, and business across the eurozone.

The following countries form the Euro Area: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain.

The following countries are EU members that are not in the Eurozone: Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania, and Sweden.

The European Union says the following about the euro:

“The euro is the official currency of 20 European Union countries which collectively make up the Euro Area, also known as the Eurozone. Some EU countries have yet to meet the criteria required to join the euro area while Denmark has opted not to participate.”

A Brief History

The euro was introduced in 1999. Initially, it was just used for accounting and electronic payments.

In 2002, euro notes and coins entered circulation, replacing the individual currencies of twelve countries (Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain).

Map showing the Eurozone members in the EU.
Image created by Market Business News.

Why Was the Euro Created?

Here are some key reasons the European Union introduced the euro:

  • Easier Trade

Trade is much easier and simpler if the participating countries have the same currency. They do not have to deal with fluctuating exchange rates. For example, before the single currency, printed calatogs had to be reprinted regularly because prices in local currencies often changed due to exchange rate fluctuations.

  • Easier Travel

Before the common currency existed, people who crossed borders in Europe had to exchange their money, sometimes several times.

  • Economic Benefits

Economists believed that one currency would make the eurozone more economically stable. They also envisioned a more unified economic landscape within the European Union.

How Does the Euro Work?

The euro is managed by the European Central Bank (ECB), which is based in Frankfurt, Germany. Like other central banks, the ECB is in charge of monetary policy; it sets interest rates and controls the money supply to ensure price stability and a healthy economy.

Notes and Coins

Euro banknotes come in denominations of €5, €10, €20, €50, €100, and €200. The eurozone stopped issuing €500 banknotes in 2019. The €500 notes that are still in circulation remain legal tender and can be used as a means of payment and store of value.

Coins come in denominations of 1 cent, 2 cents, 5 cents, 10 cents, 20 cents, 50 cents, €1, and €2. All the coins have one common side, while the other side features designs specific to each issuing country.

 

Photo of the European Central Bank headquarters in Frankfurt, Germany
Image source: Wikipedia.

The Euro Today

The euro is now the second-most traded currency in the world, after the US dollar. It is also a major reserve currency held by many central banks across the globe.

In Summary

The euro is a strong currency and a powerful symbol of European unity. It has streamlined economic activities, especially trade, within the Eurozone and plays a significant role in the global economy.