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The euro was created in 1999 as a single currency of the member states of the European Union. The euro was initially conceived many years earlier, however, in the Dutch town of Maastricht among a meeting of the fifteen members of the European Union in 1991. George H. W. Bush was the President of the United States at that time.
As of 2009 there were 16 EU member states, and the euro was the second largest reserve currency in the world after the U.S dollar with about a 26% share of world currency reserves. By comparison, about 64% of world currency reserves are in U.S. dollars and just 3% are held in Japanese yen.
In many ways, the euro has supplanted the previous importance of the German mark and the French franc in currency trading markets. Recall that it was back in 1978 at Bretton Woods that Germany and France decided to establish the European Monetary System (EMS).
The European Central Bank (ECB) manages the euro currency and the central banks of the participating countries in the Eurozone are responsible for printing and distributing euro banknotes and coin. The authority of the European Central Bank over EU state governments has been challenged since the creation of the ECB.
As a common currency, the euro provides an economic advantage to its participants in the form of reduced exchange rate risk. Reducing the risk of changes in currency exchange rates provides a measure of price stability that can lower capital costs for firms. The euro itself is a floating currency, however, so there can be strong fluctuations in the exchange rate versus the U.S dollar and other floating world currencies.
The euro was first introduced at an exchange rate of US $1.18 and almost immediately underwent selling pressure. The euro made a trading low of US $0.822 in October 2000 and took almost two full years to regain parity with the U.S. dollar by July 2002. The euro then made an extended rally versus the dollar, peaking in 2008. Extreme volatility has been measured in the euro from 2008-2010.
Outside the EU, the euro is used by Montenegro and Kosovo (the former Balkan Yugoslavia) as well as micro states such as the Vatican, Monaco, and Andorra. Interestingly, some EU member states have not actually adopted the euro as their official currency. As of 2009, the United Kingdom (UK) and the state of Denmark are operating under exemptions, for example. Other countries do not meet the requirements of participation in the common currency.
