What is the euro?

Definition of the Euro

The euro is the currency used in 19 member countries of the Eurozone. It is the second most traded currency in foreign exchange after the US dollar and the second most held reserve currency by central banks.

How the Euro Works

Like the dollar, the euro is managed by a single central bank, which is the European Central Bank (ECB). The European Central Bank has the responsibility of managing the euro considering it is shared among 19 countries, each of which sets its own fiscal policy that affects the value of the euro.

Advantages and Disadvantages of the Euro

Advantages:

• Financially weaker countries are supported by stronger countries
• Larger companies in bigger countries can produce more at a lower cost
• Large companies enjoy high demand and production

Disadvantages:

• Countries cannot print their own currency
• Countries lose financial sovereignty
• Countries must keep budget deficits low and significantly curb spending

Notable Events

The euro was launched in 1999 as an electronic payment currency, with old currencies used only for cash. Eleven countries adopted the euro immediately. The second phase was launched in 2002 when euro coins and banknotes appeared in physical form. Each country has its own distinctive euro currency.

When the euro was launched in 2002, it was worth 0.87 dollars. Its value increased as the number of users grew, reaching a peak of 1.60 dollars on April 22, 2008. However, it plummeted to 1.03 dollars in December 2016 due to traders’ concerns about the consequences of Brexit. It rose to 1.20 dollars in September 2017 after traders grew frustrated with the lack of progress in President Trump’s economic policies. As of January 2021, its value stood at 1.21 dollars.

In 2009, Greece announced that it might fail to meet its debt obligations. The European Union assured investors that it would guarantee the debts of all Eurozone members. At the same time, it requested indebted countries to implement austerity measures to reduce spending.

The Greek debt crisis threatened to spill over into Portugal, Italy, Ireland, and Spain. The European economy has since rebounded, but some argue that the Eurozone crisis still poses a threat to the future of the euro and the EU itself.

Source: https://www.thebalancemoney.com/what-is-the-euro-3305928