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Euro – The Single Currency!

posted by on July 5, 2011 at 3:08 pm
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THE (rounded) capital letter “E”, with two strokes through the middle, is the symbol for the Euro. Officials say the symbol was inspired by the letter Epsilon of the Greek alphabet, with center parallel lines added to represent the strength and integrity of this currency.

The Euro is the currency of 12 European Union member states, namely: Austria, Belgium, France, Finland, Greece, Germany, Italy, Ireland, Luxembourg, The Netherlands, Portugal and Spain.

As well as the 12 European Union countries, a host of smaller nations are also joining the euro bandwagon. They are The Vatican, San Marino, Andorra, Kosovo, Monaco and Montenegro.

The Euro is the result of the most important monetary amendment in Europe since the Roman times.

A Currency to Reckon With

 

Though the Euro can be considered as a device for essentially integrating the Single European Market, expediting a free trade between members of the so-called Eurozone, it is also a crucial part of the European political landscape.

Eurozone is composed of a group of countries which use Euro as their common currency. It came into existence in 1999, and originally comprised of 11 countries.

As of 2009, 16 countries formed the Eurozone. That is to say that it did not include all European Union countries, and in fact some Euro zone countries are still not using the Euro; in order to be included in the Eurozone, a country must use the Euro as its only legal currency.

As a currency union, monetary policies are maintained and formed by the ECB, or the European Central Bank. Composed of the ECB and the Eurozone Central Banks functioning in member states, the Euro is administered by the European System of Central Banks (ESCB).

The ECB, based in Frankfurt am Main in Germany, has exclusive rights to set monetary rules; while other members of the ESCB join in the minting, printing and distribution of coins and notes, and the operation of the Eurozone payment system.

Looking Back

Back in 1999, a number of European nations adopted a single currency called the Euro to stabilize and boost the Eurozone’s economy.

To help ease exchange rate buoyancy among different European countries, which hampered investment by firms in various states, the European Union (EU) developed the European Monetary System in 1979. This idea paved the way for the creation of the European Currency Unit.

It became clear with time that an economic merg was needed among European nations in order to forge a stronger alliance in Europe. In 1991, members of the EU approved the Maastricht Treaty, a treaty that called for a single currency throughout Europe for the 21st century.

Having a single currency is expected to jack up the economic interdependency of and the ease of business between European Union members. This is essentially beneficial for citizens of the Euro area, as rises in trade used to be one of the main motivating factors of economic growth.

Some economists are concerned about the dangers that may arise of using a single currency in such a huge and multicultural area. The Eurozone has a single monetary policy set by the ECB and it cannot be polished for the economic situation in each country.

Of particular worry is the idea that EU may not all be “attuned” — each may be at a different level in the boom cycle, or just be experiencing different fluctuations. Labor movement is also higher in the US than across the Eurozone.

The euro has been said to supplement liquidity to the financial markets in Europe. Companies and even government can now loan in Euros instead of their local currency and this enable many more sources of funds to flow.

Other economists think that the power of the Eurozone would be in the collective efforts of a virtual stronger economy, in which it is now likely to create sound financial bonds, rather than in the mere addition of single liquidities.

Rise of the Euro

The euro’s rise from its lows started shortly after it was introduced as a cash currency. From 1999 and 2002, “Eurosceptics” tried to imply the weak Euro was a sign that it was destined to fail. But it can also be said that its weakness in this period was because of the low trust in a currency that did not exist in “real” form.

Once it became “real” in the sense of existing as a form of cash, the confidence level in the Euro rose and the increasing impression that it was here to stay helped raise its value. This effect was perhaps important in the currency’s decline and recovery between 1999 and 2002, but other factors were more significant since then.

In spite of the single currencies increase in value, in addition to the rise of the other Majors (GBP, JPY, CAD, CHF, AUD) and minor currencies, the United States trade deficits continue to steadily increase. Economic theory would suggest that a decline in the dollar and an increase in the Euro should lead to a growth in US trade (greater amount of imports and lesser amount of exports), as the former becomes more affordable and the latter more expensive.

There is speculation that the strength of the Euro in relation to the dollar might encourage the use of the Euro as an alternative reserve currency; Saddam Hussein’s Iraq switched its currency reserves from dollars to Euros during the Gulf War in 2002.

Moves by central banks with big reserve holdings such as those of China or India to switch some of their reserves from dollars to euros, or even of Oil Petroleum Exporting Countries (OPEC) to switch the currency they trade in from dollars to euros, will further boos the decline of the dollar.

Did You Know That…

  • the euro is the second biggest currency reserve and the second most-traded currency on the planet next to the United States dollar?
  • it has the largest combined banknotes and coin value in circulation in the world with more than 800 billion, as of June 2010, overtaking the US dollar?
  • according to the International Monetary Fund estimates of purchasing power parity and 2009 Gross Domestic Product among other currencies, the EuroZone is the second biggest economy in the world?
  • the first batch of the euro that was minted in France was three times heavier than the Eiffel Tower when weighed?
  • when put from one end to another — the almost 15 billion banknotes and 50 billion coins that had been transported around Europe when the Euro was launched – would stretch from the Earth all the way to the Moon and back two and a half times?
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