THE EURO

The Euro is here. This is the new currency of most members of the European Union, including many of our major trading partners, and, no doubt, many of your valued customers and vendors.

What is it and what does it mean for the U.S.?

Imagine business in the very early days of our own country; there were different currencies among the 13 newly independent states. Foreign currencies circulated, too, and a sale from one state to another might be priced in dollars and paid for in pounds. 

Our first Secretary of the Treasury, Alexander Hamilton, worked for the development of a common United States currency as a foundation pillar of the new nation's economy. His portrait ended up on the ten dollar bill in your wallet.

More than 200 years later, Europe is driving rapidly towards political, social and economic union, and trade among European countries is at an historic high. The European Union's leaders  determined that the Pesos, Marks, Francs, and other currencies, and the expense and nuisance of the conversions, needed to be eliminated.

The Euro is a currency that was initially established on a weighted average of the German Mark, French Franc, and the other currencies of the nations adopting it. It' was used initially to denominate some government bonds and other financial obligations that were to be paid in Euros later on. The governments involved  worked to bring their budget deficits and inflation rates, into synchronization with one other. That was to integrate the behaviors of national currencies.

Effective January 1, 1999, the Euro was used for stock, bond, and currency markets. Some larger companies had already begun to trade in the Euro.

An important development was establishing the Euro as the common conversion. When a German wished to change Marks for French Francs, he no longer did so directly. The value of the Mark was converted to the value of the Euro, then converted to Francs.

January 1, 2002: Euro coins and notes were in circulation as coins and paper currency. 

 Goods in stores and catalogs were priced in Euros rather than in national currencies. (In fact, that had already begun. For some time, goods had been priced in both Euros and national currencies.)

On July 1, 2002, national currencies were abolished, and Euros became the only legal tender in the member countries. Holders of the "old-fashioned" currency of a single country had a while to convert them at their banks...and then they will became null and void, valued only as collector's items. Government budgets and corporate annual reports were in Euros. Subway fares and restaurant meals were be posted only in Euros. Vending machine and parking meters accepted only Euros. And the transition was complete.

Because the Euro has the backing of so many individual nations, and so the backing of an economic power actually larger than the United States, we can expect the Euro will become a more important international currency than the individual national currencies have been. That means a new currency is in circulation that can rival the U.S. dollar.

Where does the Euro go from its beginnings? Europe has historically been a group of economies, of which Germany with the powerful Deutschemark was the strongest. Now, all those economies will use and back one currency automatically making it one of the strongest currencies in the world. The other major global currencies will still be the U.S. Dollar and the Japanese Yen.

European countries outside the EU may begin to bank and trade in Euros. A Polish or Russian business buying and selling with the EU would open a Euro bank account, deposit receipts, and write Euro checks for purchases.

Some African countries whose currencies are pegged to European currencies (primarily the French Franc, e.g., The Congo, Equatorial Guinea, Senegal, etc.) can be expected to peg their currencies to the Euro, making the Euro a very influential currency. Indeed, some may allow the Euro to circulate domestically alongside their own currencies.

    
GLOSSARY

ADOPTERS: EU countries immediately adopting the Euro were Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Sweden,

EUROPEAN UNION: A group of European nations operating under a treaty as an economic union. There are no longer customs duties on shipments among the countries. There is free movement of people, goods, services, and finance.

EUROPEAN MONETARY UNION: Treaty within the EU whose signatories agreed to work toward a common currency.

EURO: The currency being adopted by those members of the EU who are part of the EMU. 

EMU: (1) "European Monetary Union" (see above) (2) The "European Monetary Unit" or "Euro" was sometimes called the EMU in the past.

NON-ADOPTERS: Those EU countries not adopting the Euro at this time are Denmark, Sweden, and the United Kingdom.