Euro

For other uses, see Euro (disambiguation).

"EUR" redirects here. For other uses, see EUR (disambiguation).

Euro ευρώ (Greek) Unofficial local spelling variants ewro (Maltese) evro (Slovenian)
Banknotes Coins
ISO 4217 Code	EUR (num. 978)
Official user(s)	15 Eurozone members  Austria  Belgium  Cyprus  France  Finland  Germany  Greece  Ireland  Italy  Luxembourg  Malta  Netherlands  Portugal  Slovenia  Spain 5 with formal agreement Mayotte  Monaco Saint Pierre and Miquelon  San Marino  Vatican City
Unofficial user(s)	4 without formal agreement Akrotiri and Dhekelia  Andorra  Kosovo  Montenegro
Inflation	3.1%
Source	European Central Bank, January 2008
Method	HICP
Pegged by	10 currencies Bosnia & Herz. convertible mark Bulgarian lev Cape Verdean escudo Central African CFA franc CFP franc Comorian franc Danish krone (±2.25%) Estonian kroon Lithuanian litas West African CFA franc
Subunit
1/100	cent actual usage varies depending on language
Symbol	€
Plural	See Euro linguistic issues
cent	See article
Coins
Freq. used	1, 2, 5, 10, 20, 50 cent, €1, €2 unless otherwise stated as rarely used
Rarely used	1 and 2 cent (applies to Finland and The Netherlands)
Banknotes
Freq. used	€5, €10, €20, €50
Rarely used	€100, €200, €500
Central bank	European Central Bank
Website	www.ecb.eu
Printer	printers Istituto Poligrafico e Zecca dello Stato Banco de Portugal Bank of Greece Banque de France Bundesdruckerei Central Bank and Financial Services Authority of Ireland De La Rue Fábrica Nacional de Moneda y Timbre François-Charles Oberthur Giesecke & Devrient Royal Joh. Enschedé National Bank of Belgium Oesterreichische Banknoten- und Sicherheitsdruck GmbH Setec Oy
Website	websites Istituto Poligrafico e Zecca dello Stato Banco de Portugal - Imprensa Nacional / Casa da Moeda Bank of Greece Banque de France Bundesdruckerei Central Bank and Financial Services Authority of Ireland De La Rue Fábrica Nacional de Moneda y Timbre François-Charles Oberthur Giesecke & Devrient Royal Joh. Enschedé National Bank of Belgium Oesterreichische Banknoten- und Sicherheitsdruck GmbH Setec Oy

The euro (currency sign: €; banking code: EUR) is the official currency of the European Union (EU) headquartered in Brussels and Strasbourg , and has been implemented in 15 member states, known collectively as the Eurozone (Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, Spain). It is also used in 9 other countries around the world, 7 of those being in Europe. Hence it is the single currency for over 320 million Europeans.www.eurodesigncontest.eu/emu.cfm?lang=en. Including areas using currencies pegged to the euro, the euro directly affects close to 500 million people worldwide.Number is a sum of estimated populations (as stated in their respective articles) of: all Eurozone members; all users of euro not part of Eurozone (whether officially agreed upon or not); all areas which use a currency pegged to the euro, and only the euro. - Please see detailed summation in article Eurozone With more than €610 billion in circulation as of December 2006 (equivalent to US$802 billion at the exchange rates at the time), the euro is the currency with the highest combined value of cash in circulation in the world, having surpassed the U.S. dollar.Atkins, Ralph (2006-12-27). Euro notes cash in to overtake dollar. Financial Times. Retrieved on 2007-05-04.

The euro was introduced to world financial markets as an accounting currency in 1999 and launched as physical coins and banknotes on 1 January 2002. It replaced the former European Currency Unit (ECU) at a ratio of 1:1.

The euro is managed and administered by the Frankfurt-based European Central Bank (ECB) and the Eurosystem (composed of the central banks of the euro zone countries). As an independent central bank, the ECB has sole authority to set monetary policy. The Eurosystem participates in the printing, minting and distribution of notes and coins in all member states, and the operation of the Eurozone payment systems.

While all European Union (EU) member states are eligible to join if they comply with certain monetary requirements, not all EU members have chosen to adopt the currency. All nations that have joined the EU since the 1993 implementation of the Maastricht Treaty have pledged to adopt the euro in due course. Maastricht obliged current members to join the euro; however, the United Kingdom and Denmark negotiated exemptions from that requirement for themselves.The €uro: Our Currency. Economic and Financial Affairs. Retrieved on 2007-05-04. Sweden turned down the euro in a 2003 referendum, and has circumvented the requirement to join the euro area by not meeting the membership criteria. In addition, three European microstates (Vatican City, Monaco, and San Marino), although not EU members, have adopted the euro due to currency unions with member states. Andorra, Montenegro, and Kosovo have adopted the euro unilaterally, while not being EU members either (see #Eurozone.)

Contents 1 Characteristics 1.1 Coins and banknotes 1.2 Payments clearing, electronic funds transfer 1.3 Currency sign 2 Economic and monetary union 2.1 History (1990–present) 2.2 Eurozone 2.3 Future prospects (2008–) 2.3.1 Pre-2004 EU members 2.3.2 Post-2004 EU members 3 Economics of the euro 3.1 Optimal currency area 3.2 Transaction costs and risks 3.3 Price parity 3.4 Macroeconomic stability 3.5 A new reserve currency 3.6 Criticism 4 Exchange rate 4.1 Flexible exchange rates 4.2 Against other major currencies 4.3 Currencies pegged to the euro 5 Linguistic issues 6 See also 6.1 Previous currency unions 6.2 Other existing common currencies 6.3 Future planned and potential common currencies 7 Notes and references 8 Further reading 9 External links 9.1 Official websites 9.2 Other

Characteristics

Coins and banknotes

The ECB is in charge of the Eurozone\'s monetary policy

Main articles: euro coins and euro banknotes

The euro is divided into 100 cents (sometimes referred to as eurocents, especially when distinguishing them from U.S. cents or the former currency in a particular country). All circulating euro coins (including the €2 commemorative coins) have a common side showing the denomination (value) with the old 15 EU-countries in the background. From 2007 or 2008 on (depending on the country where the coin is issued) that "old" map is replaced by a map of Europe, thus also showing non-EU-members like Norway. The coins also have a national side showing an image specifically chosen by the country that issued the coin. Euro coins from any country may be freely used in any nation which has adopted the euro.

The euro coins are €2, €1, €0.50, €0.20, €0.10, €0.05, €0.02, and €0.01. In the Netherlands some, and in Finland by the law all cash transactions are rounded to the nearest five cents, to avoid the use of €0.02, and €0.01. (See also Linguistic issues concerning the euro.)

Coins have a common side, and a national side designed by the respective national authorities.

Commemorative coins with €2 face value have been issued with changes to the design of the national side of the coin — as Greece did for the 2004 Summer Olympics. These two-euro coins are legal tender throughout the Eurozone. Coins with various other denominations have been issued as well, but these are not intended for general circulation. These later coins are only legal tender in the nation which issued them.

All euro banknotes have a common design for each denomination on both sides. Notes are issued in €500, €200, €100, €50, €20, €10, €5. The design for each of them has a common theme of European architecture in various artistic periods. The front (or recto) of the note features windows or gateways while the back (or verso) has bridges. Care has been taken so that the architectural examples do not represent any actual existing monument, so as not to induce jealousy and controversy in the choice of which monument should be depicted. Some of the highest denominations such as the €500 are not issued in a few countries, though they remain legal tender throughout the Eurozone.

Payments clearing, electronic funds transfer

All intra-Eurozone transfers shall cost the same as a domestic one. This is true for retail payments, although several ECB payment methods can be used. Credit/debit card charging and ATM withdrawals within the Eurozone are also charged as if they were domestic. The ECB has not standardised paper-based payment orders, such as cheques; these are still domestic-based.

The ECB has set up a clearing system, TARGET, for large euro transactions.TARGET. European Central Bank. Retrieved on 2007-10-25.

Currency sign

Main article: Euro sign

The official construction of the euro logo, which was specified to be printed in Pantone Yellow on a Reflex Blue background

A special euro currency sign (€) was designed after a public survey had narrowed the original ten proposals down to two. The European Commission then chose the final design. The eventual winner was a design created by the Belgian Alain Billiet. The official story of the design history of the euro sign is disputed by Arthur Eisenmenger, a former chief graphic designer for the EEC, who claims to have created it as a generic symbol of Europe.Connolly, Kate (2001-12-23). Inventor who coined euro sign fights for recognition. The Observer. Guardian Unlimited.

The glyph is according to the European Commission "a combination of the Greek epsilon, as a sign of the weight of European civilization; an E for Europe; and the parallel lines crossing through standing for the stability of the euro".

The European Commission also specified a euro logo with exact proportions and foreground/background colour tones.The €uro: Our Currency. europa.eu. Retrieved on 2007-10-25. While the Commission intended the logo to be a prescribed glyph shape, font designers made it clear that they intended to design their own variants instead.Siebert, Jürgen (2002). "The Euro: From Logo to Letter". Font Magazine (2). 

Placement of the currency sign varies from nation to nation. There are no official standards on where to place the euro sign.Frequently Asked Questions. europa.eu. Retrieved on 2007-10-25.

Another advantage to the final chosen symbol is that it is easily created on a typewriter lacking the euro sign, by typing a capital \'C\', backspacing and overstriking it with the equal (\'=\') sign.

Economic and monetary union

History (1990–present)

Main article: Economic and Monetary Union of the European Union

For earlier monetary history in Europe, see European Monetary System.

For transition to the euro, see Introduction of the euro.

Yielded currencies of the Eurozone  v • d • e 

Currency	Abbr.	Rate	Fixed on	EMU III
Austrian schilling	ATS	13.7603	1998-12-31	1999
Belgian franc	BEF	40.3399	1998-12-31	1999
Dutch gulden	NLG	2.20371	1998-12-31	1999
Finnish markka	FIM	5.94573	1998-12-31	1999
French franc	FRF	6.55957	1998-12-31	1999
German mark	DEM	1.95583	1998-12-31	1999
Irish pound	IEP	0.787564	1998-12-31	1999
Italian lira	ITL	1936.27	1998-12-31	1999
Luxembourg franc	LUF	40.3399	1998-12-31	1999
Portuguese escudo	PTE	200.482	1998-12-31	1999
Spanish peseta	ESP	166.386	1998-12-31	1999
Greek drachma	GRD	340.750Greece failed to meet the criteria for joining initially, so it did not join the common currency on 1 January 1999. It was admitted two years later, on 1 January 2001, with a Greek drachma (GRD) exchange rate of 340.750.	2000-06-19	2001
Slovenian tolar	SIT	239.640The final exchange rate was agreed on 11 July 2006. However, this rate was not formally effective until the tolar was succeeded by the euro on 1 January 2007.	2006-07-11	2007
Cypriot pound	CYP	0.585274The final exchange rate was agreed on 10 July 2007. However, this rate was not formally effective until the pound was succeeded by the euro on 1 January 2008.	2007-07-10	2008
Maltese lira	MTL	0.429300The final exchange rate was agreed on 10 July 2007. However, this rate was not formally effective until the lira was succeeded by the euro on 1 January 2008.	2007-07-10	2008

The euro was established by the provisions in the 1992 Maastricht Treaty on European Union that was used to establish an economic and monetary union. In order to participate in the new currency, member states had to meet strict criteria such as a budget deficit of less than three per cent of their GDP, a debt ratio of less than sixty per cent of GDP, low inflation, and interest rates close to the EU average. In the Maastricht Treaty, the United Kingdom and Denmark were granted exemptions from moving to the stage of monetary union which would result in the introduction of the euro.

Economists that helped create or contributed to the euro include Robert Mundell, Wim Duisenberg, Robert Tollison, Neil Dowling, Fred Arditti and Tommaso Padoa-Schioppa. (For macro-economic theory, see below.)

Due to differences in national conventions for rounding and significant digits, all conversion between the national currencies had to be carried out using the process of triangulation via the euro. The definitive values in euro of these subdivisions (which represent the exchange rates at which the currency entered the euro) are shown at right.

The rates were determined by the Council of the European Union, based on a recommendation from the European Commission based on the market rates on 31 December 1998, so that one ECU (European Currency Unit) would equal one euro. (The European Currency Unit was an accounting unit used by the EU, based on the currencies of the member states; it was not a currency in its own right.) Council Regulation 2866/98 (EC), of 31 December 1998, set these rates. They could not be set earlier, because the ECU depended on the closing exchange rate of the non-euro currencies (principally the pound sterling) that day.

The procedure used to fix the irrevocable conversion rate between the drachma and the euro was different, since the euro by then was already two years old. While the conversion rates for the initial eleven currencies were determined only hours before the euro was introduced, the conversion rate for the Greek drachma was fixed several months beforehand, in Council Regulation 1478/2000 (EC), of 19 June 2000.

The currency was introduced in non-physical form (travellers\' cheques, electronic transfers, banking, etc.) at midnight on 1 January 1999, when the national currencies of participating countries (the Eurozone) ceased to exist independently in that their exchange rates were locked at fixed rates against each other, effectively making them mere non-decimal subdivisions of the euro. The euro thus became the successor to the European Currency Unit (ECU). The notes and coins for the old currencies, however, continued to be used as legal tender until new notes and coins were introduced on 1 January 2002.

The Ecofin presenting the denominations 22 September 2001

The changeover period during which the former currencies\' notes and coins were exchanged for those of the euro lasted about two months, until 28 February 2002. The official date on which the national currencies ceased to be legal tender varied from member state to member state. The earliest date was in Germany; the Mark officially ceased to be legal tender on 31 December 2001, though the exchange period lasted two months. The final date was 28 February 2002, by which all national currencies ceased to be legal tender in their respective member states. However, even after the official date, they continued to be accepted by national central banks for periods ranging from several years to forever in Austria, Germany, Ireland, and Spain. The earliest coins to become non-convertible were the Portuguese escudos, which ceased to have monetary value after 31 December 2002, although banknotes remain exchangeable until 2022.

Slovenia joined the Eurozone on 1 January 2007, followed by Malta and Cyprus on 1 January 2008.CNNMoney.com.

Eurozone

Main article: Eurozone

: image is invalid or non-existent Andorra Bulgaria Czech   Rep. Denmark E U R O Z O N E Estonia Hungary Kosovo Latvia Lithuania Monaco Mont. Poland Romania San Marino Slovakia Sweden United Kingdom Vatican      Eurozone      ERM II members      unilaterally adopted      other EU members      special adoption agreement

• The euro is the sole currency in Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia and Spain. These 15 countries together are frequently referred to as the Eurozone or the euro area. More informally, "euroland" or the "eurogroup". Outside of the area covered by the map, the euro is the legal currency of the French overseas possessions of French Guiana, Réunion, Saint-Pierre et Miquelon, Guadeloupe, Martinique, Saint-Barthélemy, Saint Martin, Mayotte, and the uninhabited Clipperton Island and the French Southern and Antarctic Lands; the Portuguese autonomous regions of the Azores and Madeira; and the Spanish Canary Islands.
• By virtue of some bilateral agreements,Agreements on monetary relations (Monaco, San Marino, the Vatican and Andorra). Retrieved on 2007-05-11. the European microstates of Monaco, San Marino, and Vatican City mint their own euro coins on behalf of the European Central Bank. They are, however, severely limited in the total value of coins they may issue.
• Andorra, Montenegro, Kosovo, and Akrotiri and Dhekelia adopted the foreign euro as their legal currency for movement of capital and payments without participation in the ESCB or the right to mint coins. Andorra is in the process of entering a monetary agreement similar to that of the microstates above.
• Several possessions and former colonies of EU states have currencies pegged to the euro. These are French Polynesia, New Caledonia, Wallis and Futuna (the CFP franc); Cape Verde; the Comoros; and fourteen nations of Central and West Africa (the CFA franc). See Currencies related to the euro.
• Although not legal tender in Denmark and the United Kingdom, the euro is accepted in some stores throughout both countries, particularly international stores in large cities, and shops in Northern Ireland near the border with the Republic of Ireland, where the euro is the official currency. Similarly, the euro is widely accepted in Switzerland, even by official boards, such as the Swiss Railways.SBB - More at the station - Automatic ticket machine.

Future prospects (2008–)

Main articles: Eurozone and Enlargement of the eurozone

Pre-2004 EU members

From Greece\'s participation in 2001 until the EU enlargement in 2004, Denmark, Sweden and the United Kingdom were the only EU member states outside the monetary union. The situation for the three older member states also looks different from that of the newer EU members; the three countries have no clear roadmap for adopting the euro:

• Denmark negotiated a number of opt-out clauses from the Maastricht treaty after it had been rejected in a first referendum. On 28 September 2000, another referendum was held in Denmark regarding the euro resulting in a 53.2% vote against joining. However, Danish politicians have suggested that debate on abolishing the four opt-out clauses may possibly be re-opened in the near future. In addition, Denmark has pegged its krone to the euro (€1 = DKK 7.46038 ± 2.25%) as the krone remains in the ERM. Although not part of the European Union, both Greenland and the Faroe Islands use the Danish krone (the Faroes in the form of the Faroese króna), and so also fall within the ERM.
• Sweden: Sweden is obliged to join the euro by the 1994 Act of Accession, when they meet the economic conditions. Although the other conditions are met, the krona has never been part of ERM II, rendering Sweden ineligible. In 2003, a public referendum rejected euro membership, and Sweden has no plans to adopt the euro as of yet. The EU has made it clear that it will tolerate this with respect to Sweden, thereby giving Sweden a de facto opt-out, but not those member states that joined in 2004 or 2007.^{[citation needed]}
• The United Kingdom has an opt-out from eurozone membership under the Maastricht treaty and is not obliged to join the euro. While the government is in favour of membership provided the economic conditions are right (requiring that "five economic tests" be met), the question has never been put to referendum."Sluggish Europe proves Brown\'s case on currency", The Guardian, Guardian News and Media Limited, 2004-12-20. Retrieved on 2008-02-07.  The United Kingdom was forced to withdraw the pound sterling from the ERM (the precursor to ERM II) on Black Wednesday (16 September, 1992) due a mismatch between its benchmark currency parity and its economic performance, and the pound is not part of ERM II.

Post-2004 EU members

Remaining currencies on track to be migrated  v • d • e 

Currency	Abbr.	Rate	Conv goal
Slovak koruna	SKK	35.4424The central rate of the Slovak koruna was 38.4550 before 17 March 2007. See Slovak koruna for details.	2009-01-01
Lithuanian litas	LTL	3.45280	2010-01-01
Estonian kroon	EEK	15.6466	2011-01-01
Bulgarian lev	BGN	1.95583Bulgaria is not officially part of ERM II as of 7 January 2007. But as the Bulgarian lev exchange rate is fixed to the rate of German mark (and thus to the euro) country is included in the list.	2012-01-01
Polish złoty	PLN	—	2012-01-01
Latvian lats	LVL	0.702804	2012-01-01
Czech koruna	CZK	—	2012-01-01
Hungarian forint	HUF	—	2012-01-01
Romanian leu	RON	—	2014-01-01
Swedish krona http://www.euro-know.org/dictionary/s.htmlhttp://www.golearnforex.net/forex101/currencies.htmlhttp://www.riksbank.com/templates/speech.aspx?id=8543http://www.eurointelligence.com/Article3.1018+M5aeed90f848.0.html	SEK	—	—

As of 2008, nine new EU member states have a currency other than the euro; however, all of these countries are required by their Accession Treaties to join the euro. Some of the following countries have already joined the European Exchange Rate Mechanism, ERM II. They and the others have set themselves the goal of joining the euro (EMU III) as follows:

• 1 January 2009 for SlovakiaGovernment approved the National Euro Changeover Plan. Bank of Slovakia (2005-07-07).
• 1 January 2010 for LithuaniaAdoption of the euro in Lithuania. Bank of Lithuania. Retrieved on 2007-02-03.
• 1 January 2011 for Estonia,"Alcohol and tobacco tax to rise in Estonia next year", Helsingin Sanomat, 2007-05-25. Retrieved on 2007-07-30. 
• 1 January 2012 or later for Bulgaria,"Bulgaria\'s budget of reform", The Sofia Echo, 2007-11-30. Retrieved on 2008-02-06.  Hungary, Latvia,Latvia might adopt Euro between 2010 and 2012 - Minister. Forbes (2006-12-04). Retrieved on 2007-01-01. Czech Republic, Poland, Romania and Sweden.

The entry of Lithuania and Estonia as planned for 1 January 2007 was postponed due to unacceptably high inflation rates in those countries. Some of these currencies do not float against the euro, and a subset of those were unilaterally pegged to the euro before joining ERM II. See European Exchange Rate Mechanism, currencies related to the euro, and individual currency articles for more details.

The Czech Republic had originally aimed for entry into the ERM II in either 2008 or 2009, but the current government has officially dropped the 2010 target date, saying it will clearly not be able to meet the economic criteria. The new stated goal is 2012.Finance Ministry sees 2012 as realistic for euro adoption. Prague Daily Monitor (2007-02-22). Retrieved on 2007-02-28.

Similarly, Latvia had aimed to join the euro in 2008 but inflation rates of over 11% have resulted in a delay as the country does not meet the current criteria under council rules. The government\'s official target is now 1 January 2012 although the head of the Bank of Latvia has suggested that 2013 may be a more realistic date.Bank targets 2013 as Latvia’s ‘E-day’.

The Polish Finance Minister declared that he believed that a public declaration of a target entry date for Polish entry would be an "improper strategy".Polish Fin Min: Setting Euro Target Date Improper Strategy.

Other sources question the realism of even the revised the Czech, Lithuanian and Estonian targets.Analysts Poll - Euro entry seen delayed for some countries. www.finance.cz. Retrieved on 2008-01-25.

The Fifth Report on the Practical Preparations for the Future Enlargement of the Euro AreaFifth Report on the Practical Preparations for the Future Enlargement of the Euro Area (PDF). Commission of the European Communities (2007-07-16). Retrieved on 2007-10-25. stated on 16 July 2007 that only Cyprus, Malta (both of which adopted the euro in January 2008), Slovakia (2009) and Romania (2014) had currently set official target dates for adopting the euro.

Estonia, Latvia, Lithuania and Slovakia have already finalised the design for their respective coins\' obverse sides.

Economics of the euro

Optimal currency area

Main article: Optimum currency area

In economics, an optimum currency area (or region) (OCA, or OCR) is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency. There are two models, both proposed by Robert A. Mundell: the stationary expectations model and the international risk sharing model. Mundell himself advocates the international risk sharing model and thus concludes in favour of the euro.A Plan for a European Currency, 1973 by Mundell

Transaction costs and risks

This section needs additional citations for verification. Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (February 2008)

The most obvious benefit of adopting a single currency is removing from trade the cost of exchanging currency, theoretically allowing businesses and individuals to consummate previously unprofitable trades. On the consumer side, banks in the Eurozone must charge the same for intra-member cross-border transactions as purely domestic transactions for electronic payments (e.g. credit cards, debit cards and cash machine withdrawals).

The absence of distinct currencies also removes exchange rate risks. The risk of unanticipated exchange rate movement has always added an additional risk or uncertainty for companies or individuals looking to invest or trade outside their own currency zones. Companies that hedge against this risk will no longer need to shoulder this additional cost. The reduction in risk is particularly important for countries whose currencies have traditionally fluctuated a great deal, particularly the Mediterranean nations.

Financial markets on the continent are expected to be far more liquid and flexible than they were in the past. The reduction in cross-border transaction costs will allow larger banking firms to provide a wider array of banking services that can compete across and beyond the Eurozone.

Price parity

This section needs additional citations for verification. Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (February 2008)

Another effect of the common European currency is that differences in prices—in particular in price levels—should decrease because of the \'law of one price\'. Differences in prices can trigger arbitrage, i.e. speculative trade in a commodity across borders purely to exploit the price differential. Therefore, prices on commonly traded goods are likely to converge, causing inflation in some regions and deflation in others during the transition. Some evidence of this has been observed in specific markets. [1]

Macroeconomic stability

This section needs additional citations for verification. Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (February 2008)

Low levels of inflation are the hallmark of stable and modern economies. Because a high level of inflation acts as a highly regressive tax (seigniorage) and theoretically discourages investment, it is generally viewed as undesirable. In spite of the downside, many countries have been unable or unwilling to deal with serious inflationary pressures. Some countries have successfully contained them by establishing largely independent central banks. One such bank was the Bundesbank in Germany; as the European Central Bank is modelled on the Bundesbank, it is independent of the pressures of national governments and has a mandate to keep inflationary pressures low. Member countries join the bank to credibly commit to lower inflation, hoping to enjoy the macroeconomic stability associated with low levels of expected inflation. The ECB (unlike the Federal Reserve in the United States of America) does not have a second objective to sustain growth and employment.

National and corporate bonds denominated in euro are significantly more liquid and have lower interest rates than was historically the case when denominated in legacy currencies.^{[citation needed]} While increased liquidity may lower the nominal interest rate on the bond, denominating the bond in a currency with low levels of inflation arguably plays a much larger role. A credible commitment to low levels of inflation and a stable debt reduces the risk that the value of the debt will be eroded by higher levels of inflation or default in the future, allowing debt to be issued at a lower nominal interest rate.

A new reserve currency

The euro is perceived to be a major global reserve currency, sharing that status with the U.S. dollar (USD). The U.S. dollar still continues to enjoy its status as the primary reserve of most commercial and central banks worldwide.^{[citation needed]}

Since its introduction, the euro has been the second most widely-held international reserve currency after the U.S. dollar. The euro inherited this status from the German mark, and since its introduction, has increased its standing somewhat, mostly at the expense of the dollar. The steep increase of 4.4% in 2002 is due to the introduction of euro banknotes and coins in January 2002.

The possibility for the euro to become the first international reserve currency in the near future is now widely debated among economists.Will the Euro Eventually Surpass the Dollar As Leading International Reserve Currency? (PDF). Former Federal Reserve Chairman Alan Greenspan gave his opinion in September 2007 by stating that the euro could indeed replace the U.S. dollar as the world\'s primary reserve currency. He said that it is "absolutely conceivable that the euro will replace the dollar as reserve currency, or will be traded as an equally important reserve currency."Reuters. Euro could replace dollar as top currency - Greenspan. Retrieved on September 17, 2007. Additionally, there has been some suggestion that the recent weakness of the US dollar might encourage various parties to increase their reserves in euro at the expense of the dollar."American Gangster\'s Wad of Euros Signals U.S. Decline". In the second term of 2007, euro as a reserve currency has reached a record level of 25.6% (a +0.8% increase from the year before)- at the expense of US dollar which dropped to 64.8% (a drop of 1.3% from the year before)."Euro Rises on Speculation ECB\'s Trichet to Signal Higher Rates". By the end of 2007, shares of euro increased to 26.4% as the dollar slumped to its lowest level since records began in 1999, 63.8%.Dollar\'s Share of Currency Reserves Falls, IMF Says (Update1) Bloomberg

Currency composition of official foreign exchange reserves

	\'95	\'96	\'97	\'98	\'99	\'00	\'01	\'02	\'03	\'04	\'05	\'06	\'07*
US dollar	59.0%	62.1%	65.2%	69.3%	70.9%	70.5%	70.7%	66.5%	65.8%	65.9%	66.4%	65.7%	64.6%
Euro					17.9%	18.8%	19.8%	24.2%	25.3%	24.9%	24.3%	25.2%	25.8%
German mark	15.8%	14.7%	14.5%	13.8%
Pound sterling	2.1%	2.7%	2.6%	2.7%	2.9%	2.8%	2.7%	2.9%	2.6%	3.3%	3.6%	4.2%	4.2%
Japanese yen	6.8%	6.7%	5.8%	6.2%	6.4%	6.3%	5.2%	4.5%	4.1%	3.9%	3.7%	3.2%	2.8%
French franc	2.4%	1.8%	1.4%	1.6%
Swiss franc	0.3%	0.2%	0.4%	0.3%	0.2%