International status and usage of the euro: Wikis

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Worldwide use of the euro and U.S. dollar:      Eurozone      External adopters of the euro      Currencies pegged to the euro      Currencies pegged to the euro within narrow band      United States      External adopters of the US dollar      Currencies pegged to the US dollar      Currencies pegged to the US dollar within narrow band Note that the Belarusian ruble is pegged to the Euro, Russian Ruble and U.S. Dollar in a currency basket.

The international status and usage of the euro has grown since its launch in 1999. When the euro formally replaced 12 currencies on 1 January 2002, it inherited their use in territories such as Montenegro and they replaced minor currencies tied to the pre-euro currencies such as in Monaco. Three small states have been given a formal right to use the euro, and to mint their own coins, but all other usage has been unofficial outside the eurozone (the EU states who have adopted the euro). With or without an agreement these countries, unlike those in the eurozone, do not participate in the European Central Bank or the Euro Group.

Its international usage has also grown in its usage as a trading currency, acting as an economic or political alternative to using the United States dollar. Its increasing usage in this sense has led to it becoming the only significant challenger to the US dollar as the world main reserve currency.

Contents

International adoption

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States with issuing rights

State Adopted Agreement Pop.
Monaco Monaco 01999-01-01 1 January 1999 01998-12-31 31 December 1998[1] &0000000000032671.00000032,671
San Marino San Marino 01999-01-01 1 January 1999 01998-12-31 31 December 1998[2] &0000000000029615.00000029,615
Vatican City Vatican City 01999-01-01 1 January 1999 01998-12-31 31 December 1998[3] &0000000000000800.000000800

Several states outside the EU have adopted the euro as their currency. For formal adoption, including the right to mint their own coins, a monetary agreement must be concluded. Agreements have been concluded with Monaco, San Marino, and Vatican City. All of these states previously used versions of yielded member state currencies. The Vatican and San Marino had their currencies pegged to the Italian lira (Vatican and Sammarinese lira) and Monaco used the Monegasque franc, which was pegged on a 1:1 basis to the French franc.[4][5]

These countries concluded agreements with EU and member states: (Italy in the case of San Marino and Vatican City and France in the case of Monaco) allowing them to use and mint a limited amount of euro (with their own national symbols on the obverse side) to be valid throughout the Eurozone. They do not however print banknotes. A similar agreement is being negotiated with Andorra (see below).[4][5]

Territories outside EU

There are a number of French territories and a UK sovereign military base outside the EU which have adopted the euro as their currency, while other territories have local currencies usually pegged to the euro. Agreements were concluded for two overseas territories of France. Saint-Pierre-et-Miquelon off the coast of Canada, and Mayotte in the Indian Ocean are outside the EU but have been allowed to use the euro as their currency. However as they are under French jurisdiction they can not mint their own coins.[5][6] On 22 February 2007, Saint Barthélemy and Saint Martin were politically separated from Guadeloupe in order to form two new French overseas collectivities; they are in legal limbo until ratification of the Treaty of Lisbon.

With the adoption of the euro in Cyprus, the Sovereign Base Areas of Akrotiri and Dhekelia, which had previously used the Cypriot pound, also adopted the euro. The base areas are overseas territories of the United Kingdom, but are outside of the EU and under military jurisdiction. However their laws and currency have been aligned with those of the Republic of Cyprus, leading to the euro's adoption in the two areas.[7]

Territory Adopted Agreement Pop. Notes
United Kingdom Akrotiri and Dhekelia 02008-01-01 1 January 2008 Via treaty[8] &0000000000014500.00000014,500 Sovereign military base
France Saint Barthélemy 01999-01-01 1 January 1999 None &0000000000008450.0000008,450 Will be legally party of the EU (and hence Eurozone)
with the enforcement of the Treaty of Lisbon.
Saint Martin (France) Saint Martin 01999-01-01 1 January 1999 None &0000000000033102.00000033,102 Will be legally party of the EU (and hence Eurozone)
with the enforcement of the Treaty of Lisbon.
France Mayotte 01999-01-01 1 January 1999 01998-12-31 31 December 1998[9] &0000000000186452.000000186,452 Will become an integral part of France,
and hence the EU and the Eurozone, in 2011.
France Saint Pierre and Miquelon 01999-01-01 1 January 1999 01998-12-31 31 December 1998[10] &0000000000006125.0000006,125
France French Southern and Antarctic Lands 01999-01-01 1 January 1999 None &0000000000000140.000000140

Other users

State/Territory Adopted Seeking Pop. Notes
Andorra Andorra 01999-01-01 1 January 1999 Agreement &0000000000082000.00000082,000 Seeking issuing agreement
Northern Cyprus Turkish Republic
of Northern Cyprus
01999-01-01 1 January 1999 Agreement &0000000000265100.000000265,100 Limited use along
side Turkish lira
Kosovo Kosovo[a] 02002-01-01 1 January 2002[11] Membership &0000000002100000.0000002,100,000 Seeking membership
Montenegro Montenegro 02002-01-01 1 January 2002 Membership &0000000000684736.000000684,736 Seeking membership

Andorra does not have an official currency and hence no specific euro coins. It previously used the French franc and Spanish peseta as de facto legal tender currency. There has never been a monetary arrangement with either Spain or France; however, the EU and Andorra are currently in negotiations regarding the official status of the euro in Andorra. According to Andorran officials, Andorra would have minted its own euro coins for the first time in 2006; as of June 2008, this has not yet happened, partially due to stalling regarding banking secrecy in December 2005.[12]

Montenegro and Kosovo[a] have also used the euro since its launch, as they previously used the German mark rather than the Yugoslav dinar. This was due to political concerns that Serbia would use the currency to destabilise these provinces (Montenegro was then in a union with Serbia) so they received western help in adopting and using the mark (though there was no restriction on the use of the dinar or any other currency). They switched to the euro when the mark was replaced but have no agreement with the ECB; rather the country depends only on euros already in circulation.[13][14] Kosovo also still uses the Serbian dinar in areas mainly populated by the Serbian minority.[15]

The use of the euro in Montenegro and Kosovo has helped stabilise their economies, and for this reason the adoption of the euro by small states has been encouraged by Finance Commissioner Joaquín Almunia. European Central Bank President Jean-Claude Trichet has stated the ECB - which does not grant representation to those who unilaterally adopt the euro - neither supports nor deters those wishing to use the currency. Some in the Turkish Republic of Northern Cyprus (TRNC) have called for the unilateral adoption of the euro by that state.[13]

The self-declared Turkish Republic of Northern Cyprus (TRNC), north of the UN-administered buffer zone, still uses the Turkish lira. The TRNC is unrecognised by any country aside from Turkey but governs the northern part of the island outside of the control of the EU. Despite not adopting the euro along with southern part of Cyprus, use of the euro is seen as a way to boost intra-Cypriot trade and reduce dependence on Turkey[16] and is widely accepted.[17][18] With the use of the euro across the border helping economic integration, the arrival of the euro has been hailed as a major advance in solidifying peace and unification on the island. The Cypriot euro coins, using the Greek and Turkish languages, have been designed to avoid any bias towards any particular area of the island.[19]

Furthermore, there is usage within the EU in non-euro states. The most significant example of this is the city Höganäs in Sweden. Since 1 January 2009 Höganäs has been using the euro alongside of the Swedish krona.[20] Widespread usage, though unofficial, is also present in towns such as Haparanda.

Trading currency

In 1998, Cuba announced that it would replace the U.S. dollar with the euro as its official currency for the purposes of international trading.[21] On 1 December 2002, North Korea did the same. (Its internal currency, the wŏn, is not convertible and thus cannot be used to purchase foreign goods. The euro also enjoys popularity domestically, especially among resident foreigners.) Syria followed suit in 2006.[22]

In 2000, President of Iraq Saddam Hussein began the sale of his country's oil denominated in euros rather than dollars since the majority of Iraqi oil trade was with the EU, India and China rather than the United States. Several other oil producing countries stated they would follow suit but when Iraq was invaded in 2003, the new US interim administration immediately switched all sales of oil back to the US dollar. Since then, Iran has maintained its policy of demanding euros from the sale of oil towards Europe and Asia, and plans to set up an oil exchange denominated in euro.

Pegged currencies

Currently there are several currencies pegged to the euro, some with fluctuation bands around a central rate and others with no fluctuations allowed around the central rate. This can be seen as a safety measure, especially for currencies of areas with weak economies, as euro is seen as a stable currency and therefore would prevent collapse of currencies pegged to it, unless the euro itself were to collapse or the country were to run out of euros to exchange for their currency.

State
Population
Area
Code
National currency
Central rate
Pegged since
Fluctuation band
Formerly pegged to
EMU
Bosnia and Herzegovina Bosnia and Hercegovina &0000000004590310.0000004,590,310 &0000000000051129.00000051,129 km² BAM B&H convertible mark 1.955830 19991 January 1999 0.00% DEM (from 21 November 1995)
Bulgaria Bulgaria &0000000007385367.0000007,385,367 &0000000000110910.000000110,910 km² BGN Bulgarian lev 1.955830 19991 January 1999 0.00% DEM (from 1997)
Comoros Comoros &0000000000690948.000000690,948 &0000000000002170.0000002,170 km² KMF Comorian franc 491.9678 19991 January 1999 0.00% FRF (from 23 November 1979)
Denmark Denmark &0000000005475791.0000005,475,791 &0000000000043094.00000043,094 km² DKK Danish krone 7.460380 19991 January 1999 2.25% XEU ERM2
Estonia Estonia &0000000001324333.0000001,324,333 &0000000000045226.00000045,226 km² EEK Estonian kroon 15.64660 19991 January 1999 15.0% (de facto 0%) DEM (from 20 June 1992) ERM2
Cape Verde Cape Verde &0000000000499796.000000499,796 &0000000000004033.0000004,033 km² CVE Cape Verdean escudo 110.2650 19991 January 1999 0.00% PTE (from middle of 1998)
Latvia Latvia &0000000002307000.0000002,307,000 &0000000000064589.00000064,589 km² LVL Latvian lat 0.702804 20051 January 2005 15.0% (de facto 1%) ERM2
Lithuania Lithuania &0000000003483972.0000003,483,972 &0000000000065303.00000065,303 km² LTL Lithuanian litas 3.452800 20022 February 2002 15.0% (de facto 0%) ERM2
Morocco Morocco
(inc. West Sahara)
&0000000033657259.00000033,657,259 &0000000000712550.000000712,550 km² MAD Moroccan dirham ≈ 10.0 19991 January 1999 -

Benin
Burkina Faso
Côte d'Ivoire
Guinea-Bissau
Mali
Niger
Senegal
Togo
XOF currency union;
Benin
Burkina Faso
Côte d'Ivoire
Guinea-Bissau
Mali
Niger
Senegal
Togo
&0000000070931986.00000070,931,986 &0000000003269077.0000003,269,077 km² XOF West African CFA franc 658.90 19991 January 1999 0.00% FRF (from 17 October 1948)

Cameroon
Central African Republic
Chad
Republic of the Congo
Equatorial Guinea
Gabon
XAF currency union;
Cameroon
Central African Republic
Chad
Republic of the Congo
Equatorial Guinea
Gabon
&0000000038750133.00000038,750,133 &0000000002757528.0000002,757,528 km² XAF Central African CFA franc 655.9570 19991 January 1999 0.00% FRF (from 17 October 1948)

French Polynesia
New Caledonia
Wallis and Futuna
XPF currency union;
French Polynesia
New Caledonia
Wallis and Futuna
&0000000000520938.000000520,938 &0000000000019597.00000019,597 km² XPF CFP franc 119.3317 19991 January 1999 0.00% FRF (from 21 October 1949)

The Bulgarian Lev is pegged to the euro through a currency board. Estonia and Lithuania joined ERM II on 28 June 2004, Cyprus, Latvia and Malta joined on 2 May 2005; these currencies had been pegged to the Euro before joining ERM II. Malta was pegged to a basket of currencies where the Euro had a 70% weighting. As part of ERM II, the currencies have a fluctuation band of ±15%. However, some states have committed to a tighter fluctation band.

Convertible mark is the currency of Bosnia and Herzegovina and it was fixed to 1 German Mark when it was introduced on the basis of the Dayton agreement; consequently after introduction of the euro, the Convertible mark uses the German-mark-to-euro rate at 1.95583 BAM per euro.

Reserve currency status

The euro is a major global reserve currency, sharing that status with the U.S. dollar (USD), which continues to be the primary reserve of most commercial and central banks.[23]

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, it has increased its standing, mostly at the expense of the dollar. The increase of 4.4% in 2002 is due to the introduction of euro banknotes and coins in January 2002.

The possibility of the euro's becoming the first international reserve currency is now widely debated among economists.[24] Former Federal Reserve Chairman Alan Greenspan gave his opinion in September 2007 that the euro could indeed replace the U.S. dollar as the world's primary reserve currency. He said it is "absolutely conceivable that the euro will replace the dollar as reserve currency, or will be traded as an equally important reserve currency."[25] Additionally, there has been suggestion that recent weakness of the US dollar might encourage parties to increase their reserves in euro at the expense of the dollar.[26] In the second term of 2007, euro as a reserve currency had 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).[27] 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%.[28]

The exact situation varies from country to country, for example those with dollar pegs have greater dollar reserves and those with euro pegs have greater euro reserves.[29] In 2009, Russia's foreign reserves in euro exceed dollar reserves for the first time; Russia held 47.5% (up from 42% in 2008) in euro and 41.5% (down from 47%) in dollar leading the Central Bank of Russia to announce the euro had become the reserve currency of Russia.[30] The usage of the euro is particularly strong in Eastern Europe, not surpassingly in those which have joined the EU, with 54.8% of all loans in Bulgaria, and 85.2% in Latvia, being issued in euro rather than the local currencies.[31]

Currency composition of official foreign exchange reserves
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
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% 64.1% 64.0%
Euro 17.9% 18.8% 19.8% 24.2% 25.3% 24.9% 24.3% 25.2% 26.3% 26.5%
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% 4.7% 4.1%
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% 2.9% 3.3%
French franc 2.4% 1.8% 1.4% 1.6%
Swiss franc 0.3% 0.2% 0.4% 0.3% 0.2% 0.3% 0.3% 0.4% 0.2% 0.2% 0.1% 0.2% 0.2% 0.1%
Other 13.6% 11.7% 10.2% 6.1% 1.6% 1.4% 1.2% 1.4% 1.9% 1.8% 1.9% 1.5% 1.8% 2.0%
Sources: 1995-1999, 2006-2008 IMF: Currency Composition of Official Foreign Exchange ReservesPDF (80 KB)
Sources: 1999-2005, ECB: The Accumulation of Foreign ReservesPDF (816 KB)                  

A currency is attractive for international transactions when it demonstrates stability, a well-developed financial market to trade the currency, and acceptability to others. While the euro has made substantial progress, a few challenges undermine the ascension of the euro as a major reserve currency. Persistent excessive budget deficits of some member nations, economically weak new members, conservatism of financial markets, and inertia or path dependence are important factors keeping the euro as a junior international currency to the U.S. dollar. However, at the same time, the USD has increasingly suffered from a double deficit and has its own concerns.

As the euro becomes a new reserve currency, Eurozone governments will enjoy substantial benefits. Since money is an interest-free loan to the issuing government by the holder of the currency, foreign reserves act as a subsidy to the country minting the currency (see Seigniorage). However, reserve status also holds risks, as the currency may become overvalued, hurting European exporters and potentially exposing the European economy to influence by external factors who hold large quantities of euros.

See also

Notes and references

Notes:

a.   ^ Kosovo is the subject of a territorial dispute between the Republic of Serbia and the self-proclaimed Republic of Kosovo. The Assembly of Kosovo unilaterally declared its independence on 17 February 2008, a move that is recognised by 65 of the 192 UN member states and the Republic of China (Taiwan), but not by other UN member states. Serbia claims it as part of its own sovereign territory.

References:

  1. ^ By monetary agreement between France (acting for the EC) and Monaco
  2. ^ By monetary agreement between Italy (acting for the EC) and San Marino
  3. ^ By monetary agreement between Italy (acting for the EC) and Vatican city[1]
  4. ^ a b "Agreements on monetary relations (Monaco, San Marino, the Vatican and Andorra)". European Communities. 2004-09-30. http://europa.eu/scadplus/leg/en/lvb/l25040.htm. Retrieved 2006-09-12.  
  5. ^ a b c The euro outside the euro area, Europa (web portal)
  6. ^ Agreements concerning the French territorial communities
  7. ^ Theodoulou, Michael (2007-12-27Euro reaches field that is for ever England, Times Online
  8. ^ By the third protocol to the Cyprus adhesion Treaty to EU and British local ordinance (see [2]).
  9. ^ By agreement of the EU Council (see [3]).
  10. ^ By agreement of the EU Council (see [4])
  11. ^ By UNMIK administration direction 1999/2 (see [5])
  12. ^ Boldt, Hans H. and Sant Julià de Lòria (2006-11-15). "Andorranische Euros nicht zu jedem Preis" (in German). Andorra-Intern. http://www.andorra-intern.com/news_2006/andorraeuros.htm. Retrieved 2007-01-03.  
  13. ^ a b Euro used as legal tender in non-EU nations International Herald Tribune (2007-01-01)
  14. ^ KOUCHNER SIGNS REGULATION ON FOREIGN CURRENCY, UNMIK
  15. ^ Kosovo - Economic profile, Europa (web portal)
  16. ^ Hadjicostis, Menelaos (2007-12-30) In north Cyprus, the Turkish lira is the official currency, but euro is embraced, International Herald Tribune
  17. ^ Cyprus and Malta adopt the euro BBC
  18. ^ Cyprus' isolated north will be enthusiastic — if unofficial — euro users
  19. ^ Smith, Helena (2008-01-02) Arrival of euro boosts Cyprus peace hopes, The Guardian
  20. ^ "BBC NEWS | Business | Swedish town aims to be 'euro-city'". News.bbc.co.uk. Page last updated at 06:46 GMT, Monday, 29 December 2008. http://news.bbc.co.uk/2/hi/business/7798060.stm. Retrieved 2009-01-01.  
  21. ^ "Cuba to adopt Euro in foreign trade". BBC News. 1998-11-08. http://news.bbc.co.uk/1/hi/world/americas/210441.stm. Retrieved 2008-01-02.  
  22. ^ "US row leads Syria to snub dollar". BBC News. 2006-02-14. http://news.bbc.co.uk/1/hi/business/4713622.stm. Retrieved 2008-01-02.  
  23. ^ Currency Composition of Official Foreign Exchange Reserves (COFER)
  24. ^ "Will the Euro Eventually Surpass the Dollar As Leading International Reserve Currency?" (PDF). http://www.wage.wisc.edu/uploads/Working%20Papers/chinnfrankel_NBER_eurotopcurrency.pdf.  
  25. ^ "Reuters". Euro could replace dollar as top currency - Greenspan. http://www.reuters.com/article/bondsNews/idUSL1771147920070917. Retrieved 17 September 2007.  
  26. ^ ""American Gangster's Wad of Euros Signals U.S. Decline"". http://www.bloomberg.com/apps/news?pid=20601109&sid=azto7U.TmGX0&refer=exclusive.  
  27. ^ ""Euro Rises on Speculation ECB's Trichet to Signal Higher Rates"". http://www.bloomberg.com/apps/news?pid=20601101&sid=afEneKf3hgw8&refer=japan.  
  28. ^ Dollar's Share of Currency Reserves Falls, IMF Says (Update1) Bloomberg
  29. ^ Truman, Edwin M. (27 July 2009) It’s Time to Recognize Reserve Currency Realities, Peterson Institute for International Economics
  30. ^ Dollar stops being Russia's basic reserve currency, Pravda 19 May 2009
  31. ^ Robinson, Frances (8 July 2009) Euro Grows as Reserve Currency at Dollar’s Expense , Bloomberg

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