The euro currency has entered its 26th year amid challenging economic conditions in the eurozone.
The euro, the official currency of 20 out of 27 EU member states, was introduced in 1999 as a dematerialized currency for accounting and electronic payments and to global financial markets on this date.
Following a three-year transition, the euro entered daily life as banknotes and coins on Jan. 1, 2002, and has since been used for everyday transactions.
The monetary policy of the eurozone, which comprises EU countries using the euro, is overseen by the “Eurosystem,” comprising the European Central Bank (ECB) and member states’ central banks.
The Frankfurt-based ECB is tasked with ensuring price stability in the eurozone. Its primary goal is to control inflation, keeping it below 2% in the medium term. To achieve this, it adjusts interest rates, either raising them to reduce spending or lowering them to boost consumption.
The ECB council meets every six weeks at its headquarters to evaluate the state of the economy and the currency, determining monetary policy accordingly.
Approximately 350M in Europe use euro
Recognized as the world’s second most significant currency after the US dollar, the euro is used by about 350 million people in Europe.
It circulates as seven denominations of banknotes, including €5, €10, €20, €50, €100, €200, and €500, and coins of 5, 10, 20, and 50 cents, as well as €1 and €2 in various sizes and colors.
The printing of €500 notes, the largest denomination, was discontinued in 2019 to combat money laundering and terrorist financing. However, these notes can still be deposited into bank accounts or exchanged at banks.
All EU countries, except Denmark, are required to adopt the euro if they meet the necessary criteria.
Denmark, which rejected the euro in a referendum, continues to refrain despite fulfilling all economic and legal requirements under EU treaties.
Croatia was the most recent country to join the eurozone, adopting the currency on Jan. 1, 2023.
Bulgaria is expected to follow within a few years, having already entered the exchange rate mechanism—a crucial step toward eurozone membership.
Loss of value
When the euro was launched in 1999, €1 was equivalent to $1.17. By October 2000, it had depreciated to $0.83.
The currency gained value between 2002 and 2008, reaching a record high of $1.60 in 2008.
In 2022, global events such as the Russia-Ukraine war, the energy crisis, rising geopolitical risks, and the US Federal Reserve’s (Fed) hawkish policies caused the euro to lose 16% of its value against the dollar.
The Fed began increasing interest rates in March 2022, while the ECB delayed its first hike until July.
The ECB’s aggressive stance in subsequent months helped the euro regain value against the dollar in 2023, marking its first annual recovery since 2020.
However, in November 2024, Donald Trump’s election win, tariff plans on EU goods, slower US interest rate cuts, and Europe’s weakening economy placed downward pressure on the euro-dollar parity.
Starting at 1.10 at the beginning of 2024, the euro stood at 1.04 by Dec. 31.
The currency is now just 3.84% away from falling to $1, a level last seen during the early 2000s and again amid the energy crisis following the Russia-Ukraine war.
International use
Despite being the second most-used reserve currency after the dollar, the euro’s global role has declined.
According to the International Monetary Fund (IMF), the euro accounted for 19.76% of global official foreign exchange reserves in 2024, down from 25% in 2003.
In global payments, the euro’s share dropped from over 24% in 2023 to 22.9% by October 2024.
Digital euro developments
The ECB is preparing to introduce a digital version of the euro to adapt to evolving financial landscapes. Efforts to create a “digital euro” began in 2021.
In November 2023, the ECB announced a two-year preparatory phase for exploring digital currency issuance.
Meanwhile, the EU is developing a regulatory framework to oversee the digital euro and define its legal foundations.
The digital euro, issued by the ECB as a central bank digital currency, will complement traditional cash and be available for public use.
It will maintain the same reliability, value, and stability as the physical euro.
A draft rulebook for its use is expected in early 2025. Once implemented, the digital euro will offer an alternative payment option across Europe, benefiting individuals and businesses alike.
*Written by Gokhan Ergocun from Istanbul
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Publish date : 2025-01-02 03:46:00
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The post Euro marks 26 years amid challenging economy first appeared on Love Europe.
Author : love-europe
Publish date : 2025-01-02 12:35:45
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