The Euro

What is the euro exactly?

The euro is arguably the second most important currency in the World behind the U.S. dollar (second most traded currency and second largest currency reserve). The euro forex is a very active market and many countries including China plan on using more of the euro and less of the greenback for diversifying their currency risk, in trading and in their currency reserves.

Historically, Europeans have been trying to build a more unified Union, and in particular a unified monetary policy, since at least the early 1970’s. The goal was to counterbalance the economic power of the United States, which had the advantage of a much large uniform market with one single currency. Using a different currency within each European country was an impediment to trade and economic development.

Europeans have tried for a long time to have a single currency. There was first the “European Unit of Account”, replaced in 1979 by the “European Currency Unit”, finally replaced itself in 1999 by the euro. Note that the first two forms of European currencies were only “administrative currencies” not used by the people. But the euro is truly a currency as all other underlying currencies in each of the countries participating in the euro do not circulate anymore.

The euro (€) is now the official currency of 16 of the 27 of the European Union member states. The sixteen countries which form the so-called Eurozone are Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. Great Britain, Denmark and Sweden are three European countries with large economies that have resisted joining the euro currency and maintained their own currencies.

Each country in the Eurozone has kept its Central Bank, but their have relinquished most of their sovereign power to decide their monetary policy, now centrally managed and administered by the European Central Bank (ECB), including the printing of bills and minting of coins.

The forex euro dollar is the most actively traded currency pair in the World. The exchange rate of the EUR/USD was initially set at 1.18 at the euro introduction in 1999. The euro initially fell sharply, reaching a low of 0.8228 by October 26, 2000. This was a very bad start for the euro, risking the survival of the euro itself. But since then the euro has been very strong against the US dollar, reaching an all time high of 1.5990 on July 15th, 2008.

The euro has now stabilized around 1.40 in the forex market. Euro currency trading is very active with a share of 37% of all FX transactions. EUR/USD is one of the most liquid market in the World. If you are interested in forex trading, the euro is a good starting point.