Euro

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Euro

Overview

The euro (EUR) is the official currency of the European Union’s monetary union. Launched in 1999 as an electronic currency and introduced in banknote and coin form in 2002, it is the world’s second-most widely held reserve currency and the second-most traded currency after the U.S. dollar. The euro facilitates trade and travel across participating countries and plays a central role in European economic integration.

History and adoption

  • Created as part of the European Economic and Monetary Union (EMU) to integrate EU economies and simplify cross-border transactions.
  • Adopted by 19 of the EU’s 27 member states, collectively known as the eurozone.
  • Introduced electronically in 1999; euro banknotes and coins entered circulation in 2002.

Euro notes and coins (denominations)

  • Banknotes: €5, €10, €20, €50, €100, €200. The €500 banknote was phased out of issuance in 2019 but remains legal tender where it is held.
  • Coins: 1 cent, 2 cent, 5 cent, 10 cent, 20 cent, 50 cent, €1, €2.
  • Banknotes share a common design across the eurozone; coins have a common reverse and a national obverse that differs by issuing country.

Who uses the euro

  • Official legal tender in eurozone members: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.
  • Also used by a few small non-EU states (Andorra, Monaco, San Marino, Vatican City) and by some countries whose currencies are pegged to the euro.

Governance and monetary policy

  • The European Central Bank (ECB) is charged with preserving the euro’s value and maintaining price stability across the eurozone.
  • The ECB operates within the European System of Central Banks (ESCB), which includes national central banks of all EU member states.

Economic effects and challenges

  • Benefits:
  • Eliminates exchange-rate risk among member states, lowering transaction costs for business and travel.
  • Encourages deeper economic and political integration within the EU.
  • Provides a strong, stable currency that serves as a reliable store of value for many residents and investors.
  • Constraints and challenges:
  • Member states share a common monetary policy and cannot unilaterally devalue their currency or set independent interest rates, limiting national policy tools for responding to country-specific downturns.
  • The absence of a centralized fiscal union (comparable to federal fiscal transfers) has contributed to tensions during crises, such as the European sovereign debt crisis, prompting stronger EU-level coordination and interventions.
  • Economic diversity across member states means common policy can have asymmetric effects.

Key takeaways

  • The euro is a major global currency that simplifies trade and travel across participating European countries.
  • It comes in seven common banknote denominations (including the discontinued-issuance €500) and eight coin denominations.
  • While the euro strengthens integration and stability, it also constrains national monetary policy and requires EU-level mechanisms to address asymmetric shocks and fiscal imbalances.