International status and usage of the euro

Worldwide use of the euro and US$:

  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

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 replaced minor currencies tied to the pre-euro currencies, such as in Monaco. Four 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 as a trading currency, acting as an economic or political^{[citation needed]} 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's main reserve currency.

International adoption [edit]

Sovereign states [edit]

State	Adopted euro	Issuing rights	Pop.
Andorra[1]	02002-01-011 January 2002 (de facto)[2] 02012-04-011 April 2012[3]	(after 1 July 2013)	700482000000000000082,000
Monaco[4][5][6]	01999-01-011 January 1999	02002-01-011 January 2002	700432671000000000032,671
San Marino[7][8][9]	01999-01-011 January 1999	02002-01-011 January 2002	700429615000000000029,615
Vatican City[10][11][12]	01999-01-011 January 1999	02002-01-011 January 2002	7002800000000000000800

Several European microstates outside the EU have adopted the euro as their currency. For EU sanctioning of this adoption, a monetary agreement must be concluded. Prior to the launch of the euro, agreements were reached with Monaco, San Marino, and Vatican City by EU 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. However, they can not print banknotes. All of these states had previously had monetary agreements to use yielded eurozone 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 to the French franc.^[3][13] Between 2010 and 2012, new agreements between the EU and Monaco, San Marino and the Vatican City came into force.^[3]

A similar agreement was negotiated with Andorra and came into force on 1 April 2012.^[3][13] Andorra did not previously have an official currency. Prior of 2002, it used both the French franc and Spanish peseta as de facto legal tender currency, though they never had a monetary arrangement with either country, and switched to the euro (without any monetary agreement) when it was introduced on 1 January 2002. After years of negotiations, partially over concerns with banking secrecy,^[14] the EU and Andorra signed a monetary agreement on 30 June 2011 which made the euro the official currency in Andorra and allowed them to mint their own euro coins as early as 1 July 2013, provided they comply with the agreement's terms.^[15][16] In October 2012, Jordi Cinca, Andorra's Minister of Finance, stated that 1 January 2014 was a more likely date to start issuing euros due to delays in adopting the legislation required by the monetary agreement.^[17][18]

Dependent territories outside the EU [edit]

Outside the EU, there are currently four French territories and a British territory which have agreements to use the euro as their currency. All other dependent territories of eurozone member states which have opted not to be a part of EU, usually with Overseas Country and Territory (OCT) status, use local currencies which are often pegged to the euro or US dollar. As non-sovereign entities, dependent territories which have adopted the euro are not permitted to mint euro coins like the European microstates, nor do they get a seat in the European Central Bank (ECB) or the Eurogroup.^[3] France is responsible for ensuring that the laws governing the EMU apply in their territories which use the euro.^{[19][20][21][22]}

The first OCTs to adopt the euro through a monetary agreement were the French overseas territories of Saint-Pierre-et-Miquelon, located off the coast of Canada, and Mayotte in the Indian Ocean. They both adopted the euro on 1 January 1999 when the currency was first introduced at the electronic level.^[20] Mayotte subsequently held a referendum in 2009 in which they decided to become an integral part of France. Their status is expected to change from an OCT to an OMR, where EU laws apply without separate agreements, on 1 January 2014,^[23] which will render the previous monetary agreement unnecessary.

On 22 February 2007, Saint Barthélemy and Saint Martin were politically separated from the French Outermost region (OMR) Guadeloupe to form two new French overseas collectivities, causing their status in the EU to briefly be in legal limbo until ratification of the Treaty of Lisbon reaffirmed both territories remained in the EU. The euro continued to be used in both territories throughout this time without incident. When Saint Barthélemy subsequently withdrew from EU on 1 January 2012, changing its status to an OCT, the territory had to sign a monetary agreement to continue using the euro.^[24]

With the adoption of the euro by Cyprus per 1 January 2008, the Sovereign Base Areas of Akrotiri and Dhekelia, which had previously used the Cypriot pound, also decided to adopt the euro. The base areas are overseas territories of the United Kingdom, an EU member state which itself doesn't use the euro, but are outside of the EU and under military jurisdiction. Their laws and currency have been aligned with those of the Republic of Cyprus, leading to the euro's adoption in the two areas.^[25]

	Territories outside EU	Adopted euro	Agreement	Pop.	Notes
	Akrotiri and Dhekelia	02008-01-011 January 2008	02007-08-077 August 2007[22]	700414500000000000014,500	UK dependent territory. Replaced the Cypriot pound with the euro along with Cyprus.[22]
	Mayotte	01999-01-011 January 1999	01998-12-3131 December 1998[26]	7005186452000000000186,452	An OCT of France. Became an integral part of France in 2011 and the territory is expected to have its status changed to an OMR, and thus enter the EU and Eurozone, on 1 January 2014.[23]
	Saint Pierre and Miquelon	01999-01-011 January 1999	01998-12-3131 December 1998[26]	70036125000000000006,125	An OCT of France.
	French Southern and Antarctic Lands	01999-01-011 January 1999		7002140000000000000140	An OCT of France.
	Saint-Barthélemy	01999-01-011 January 1999	02011-07-1212 July 2011[24]	70038823000000000008,823	Agreement entered into force on 1 January 2012 when the territory's status changed from an OMR to an OCT.[24]

Unilateral adopters [edit]

State/Territory	Adopted	Seeking	Notes	Pop.
Kosovo[a]	02002-01-011 January 2002[28]	EU Membership[29]	Potential Candidate	70061700000000000001,700,000
Montenegro	02002-01-011 January 2002[30]	EU Membership[31]	Candidate	7005684736000000000684,736

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.^[32][33] Kosovo also still uses the Serbian dinar in areas mainly populated by the Serbian minority.^[34]

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 former Finance Commissioner Joaquín Almunia. Former 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.

In October 2012, the President of Panama Ricardo Martinelli suggested that he was considering making the euro an official currency of the country to go along with the US dollar.^[35]

Usage in states with another official currency [edit]

In various countries the euro is accepted by some merchants albeit not being official currency there. Additionally sometimes it is used for pricing purposes even if the actual payments are made in the official currency (e.g., for real estate).

EU members outside the Eurozone [edit]

The Swedish town Höganäs, does, since 1 January 2009, generally allow shop payments in euros alongside of the Swedish krona.^[36] Widespread usage, though unofficial, is also present in towns such as Haparanda, on the border with Finland. The euro is often accepted in shops near other borders to the Eurozone, like the borders of Poland, the Czech Republic and Hungary shared with either Germany, Austria, Slovenia or Slovakia, the border areas of Switzerland and more. Tourist oriented shops in the United Kingdom usually accepts euro. In Northern Ireland, as a border area, the euro is accepted in many shops^[37]

Northern Cyprus [edit]

EU law and treaties application to Northern Cyprus is currently suspended.^[38] Its territory is claimed by the Republic of Cyprus, one of the EU member states, but currently Northern Cyprus is under Turkish Republic of Northern Cyprus (TRNC) control. The TRNC is not recognised by the Republic of Cyprus (which claims jurisdiction over the whole island), by the European Union or by any country other than Turkey. EU law would start to apply in Northern Cyprus if it comes under control of the Republic of Cyprus (if the Cyprus dispute is resolved through unification), whose official legal tender is the Euro.

Presently, the TRNC government has declared the Turkish lira to be its legal tender. The euro (along with other major currencies such as the US dollar and the British pound) can be used to pay for goods and services in many shops related to or situated near tourist hotspots, as well as in some major supermarkets. However the exchange rate used by these businesses may not always reflect the true value of the currencies involved.^[39][40]
The Cypriot euro coins, using the Greek and Turkish languages, have been designed to avoid any bias towards any particular area of the island.^[41]

Some in the Turkish Republic of Northern Cyprus (TRNC) have called for the unilateral adoption of the euro by that state (similar to other states).^[32]

Trading currency [edit]

In 1998, Cuba announced that it would replace the US$ with the euro as its official currency for the purposes of international trading.^[42] 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 elites and resident foreigners.) Syria followed suit in 2006.^[43]

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.^{[citation needed]} 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.^{[citation needed]} 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 [edit]

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. The euro is seen as a stable currency, i.e. there are no dramatic appreciations or depreciations of its value that might suddenly damage the economy or harm trade. Thus it provides security to traders and people holding that currency.

In 2011 the Swiss franc was rapidly appreciating against the euro, harming its exports to the eurozone. In response, Switzerland implemented a cap to the Swiss franc's value. This was not so much a peg, as they were merely limiting its highest value and not its lowest.

	State	Population	Area	Code	National currency	Central rate	Pegged since	Fluctuation band	Formerly pegged to	EMU
	Bosnia and Herzegovina	70064590310000000004,590,310	700451129000000000051,129 km²	BAM	B&H convertible mark	1.955830	19991 January 1999	0.00%	DEM (from 21 November 1995)
	Bulgaria	70067385367000000007,385,367	7005110910000000000110,910 km²	BGN	Bulgarian lev	1.955830	19991 January 1999	0.00%	DEM (from 1997)
	Comoros	7005690948000000000690,948	70032170000000000002,170 km²	KMF	Comorian franc	491.9678	19991 January 1999	0.00%	FRF (from 23 November 1979)
	Denmark	70065475791000000005,475,791	700443094000000000043,094 km²	DKK	Danish krone	7.460380	19991 January 1999	2.25% (de facto 0.5%)	XEU	ERM2
	Cape Verde	7005499796000000000499,796	70034033000000000004,033 km²	CVE	Cape Verdean escudo	110.2650	19991 January 1999	0.00%	PTE (from middle of 1998)
	Latvia	70062307000000000002,307,000	700464589000000000064,589 km²	LVL	Latvian lats	0.702804	20051 January 2005	15.0% (de facto 1%)		ERM2
	Lithuania	70063483972000000003,483,972	700465303000000000065,303 km²	LTL	Lithuanian litas	3.452800	20022 February 2002	15.0% (de facto 0%)	US$ (from 1 April 1994)	ERM2
	Morocco (inc. West Sahara)	700733657259000000033,657,259	7005712550000000000712,550 km²	MAD	Moroccan dirham	≈ 10.0	19991 January 1999	–
	São Tomé e Príncipe	7005163000000000000163,000	70031001000000000001,001 km²	STD	São Tomé and Príncipe dobra	24,500	20101 January 2010	0.00%
	XOF currency union; Benin Burkina Faso Guinea-Bissau Ivory Coast Mali Niger Senegal Togo	700770931986000000070,931,986	70063269077000000003,269,077 km²	XOF	West African CFA franc	655.957	19991 January 1999	0.00%	FRF (from 17 October 1948)
	XAF currency union; Cameroon Central African Republic Chad Republic of the Congo Equatorial Guinea Gabon	700738750133000000038,750,133	70062757528000000002,757,528 km²	XAF	central African CFA franc	655.9570	19991 January 1999	0.00%	FRF (from 17 October 1948)
	XPF currency union; French Polynesia New Caledonia Wallis and Futuna	7005520938000000000520,938	700419597000000000019,597 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.^{[citation needed]} Lithuania joined ERM II on 28 June 2004, Latvia joined on 2 May 2005; these currencies had been pegged to the euro before joining ERM II.^[44] As part of ERM II, the currencies have a fluctuation band of ±15%. Denmark, however, has committed to a tighter fluctuation band of 2.25%.^[45]

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 [edit]

Distribution of global reserve currencies

The euro is a major global reserve currency, sharing that status with the US dollar (USD), which continues to be the primary reserve of most commercial and central banks.^[46]

Since its introduction, the euro has been the second most widely held international reserve currency after the US 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.^[47] Former Federal Reserve Chairman Alan Greenspan gave his opinion in September 2007 that the euro could indeed replace the US 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."^[48] 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.^[49] 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).^[50] 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%.^[51]

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.^[52] 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.^[53] The usage of the euro is particularly strong in eastern Europe, not surprisingly in those that 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.^[54] The following table shows central banks allocated reserves in euros and US dollar.

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 US 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.^{[citation needed]}

See also [edit]

• Dollarisation
• International use of the US dollar
• Reserve currency

Notes [edit]

References [edit]

External links [edit]

• ECB latest press release on central rates and bands for ERM II