International status and usage of the euro

Worldwide use of the euro and US dollar:

  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 alternative to using the United States dollar. Its increasing usage in this sense has led to its becoming the only significant challenger to the US dollar as the world's main reserve currency.

International adoption

Sovereign states

State	Adopted euro	Issuing rights	Pop.
Andorra[1]	000000002002-01-01-00001 January 2002 (de facto)[2] 000000002012-04-01-00001 April 2012[3]	1 July 2013	7004820000000000000♠82,000
Monaco[4][5][6][7]	000000001999-01-01-00001 January 1999	000000002002-01-01-00001 January 2002	7004326710000000000♠32,671
San Marino[8][9][10][11]	000000001999-01-01-00001 January 1999	000000002002-01-01-00001 January 2002	7004296150000000000♠29,615
Vatican City[12][13][14][15]	000000001999-01-01-00001 January 1999	000000002002-01-01-00001 January 2002	7002800000000000000♠800

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 the euro and mint a limited amount of euro coins (with their own national symbols on the obverse side) to be valid throughout the Eurozone. However, they cannot 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][16] 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][16] Andorra did not previously have an official currency. Prior to 2002, it used both the French franc and Spanish peseta as de facto legal tender currencies, though they never had an official 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,^[17] 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.^[18][19] However, the first Andorran euro coins did not enter into circulation until January 2015.^[20][21]

Eurozone participation

<dt class="glossary " id="european union (eu) member states" style="margin-top: 0.4em;">European Union (EU) member states

  19 in the eurozone.

  7 not in ERM II, but obliged to join the eurozone on meeting convergence criteria (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, and Sweden).

  1 in ERM II, with an opt-out (Denmark).

  1 not in ERM II with an opt-out (United Kingdom).

Non-EU member states

  4 using the euro with a monetary agreement (Andorra, Monaco, San Marino, and Vatican City).

  2 using the euro unilaterally (Kosovo^{[lower-alpha 1]} and Montenegro).

Dependent territories outside the EU

Outside the EU, there are currently three French territories and a British territory that have agreements to use the euro as their currency. All other dependent territories of eurozone member states that 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.^{[22][23][24][25]}

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.^[23] Mayotte subsequently held a referendum in 2009 in which it decided to become an integral part of France. Its status was changed from an OCT to an OMR, where EU laws apply without separate agreements, on 1 January 2014,^[26] which rendered 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. This caused 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 became an overseas territory of the European Union on 1 January 2012, changing its status to an OCT, the territory had to sign a monetary agreement to continue using the euro.^[27]

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 an overseas territory of the United Kingdom, an EU member state which itself does not 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.^[28]

	Territories outside EU	Adopted euro	Agreement	Pop.	Notes
	Akrotiri and Dhekelia	000000002008-01-01-00001 January 2008	000000002007-08-07-00007 August 2007[25]	7004145000000000000♠14,500	UK dependent territory. Replaced the Cypriot pound with the euro along with Cyprus.[25]
	Saint Pierre and Miquelon	000000001999-01-01-00001 January 1999	000000001998-12-31-000031 December 1998[29]	7003612500000000000♠6,125	An OCT of France.
	French Southern and Antarctic Lands	000000001999-01-01-00001 January 1999		7002140000000000000♠140	An OCT of France.
	Saint-Barthélemy	000000001999-01-01-00001 January 1999	000000002011-07-12-000012 July 2011[27]	7003882300000000000♠8,823	Agreement entered into force on 1 January 2012 when the territory's status changed from an OCT to an OMR.[27]

Unilateral adopters

State/Territory	Adopted	Seeking	Notes	Pop.
Kosovo[lower-alpha 1]	000000002002-01-01-00001 January 2002[30]	EU Membership[32]	Potential Candidate	7006170000000000000♠1,700,000
Montenegro	000000002002-01-01-00001 January 2002[33]	EU Membership[34]	Candidate	7005684736000000000♠684,736

Montenegro and Kosovo^[a] have also used the euro since its launch, as they previously used the German mark rather than the Yugoslav dinar. Unlike the states above, they do not have a formal agreement with the EU to use the euro as their currency, and have never minted marks or euros; rather they depend on bills and coins already in circulation.^[35][36]

There were political concerns that Serbia could use the currency to destabilise these territories (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. In North Kosovo, which is mainly populated by the Serbian minority, the Serbian dinar, which replaced the Yugoslav dinar, continues to be used^[37] despite its lack of recognition or use elsewhere in Kosovo.

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 a third official currency of the country to go along with the US dollar and the Balboa.^[38]

Usage in states with another official currency

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

The Swedish town of Höganäs has, since 1 January 2009, generally allowed shop payments in euros alongside the Swedish krona.^[39] 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 Germany, Austria, Slovenia or Slovakia, the border areas of Switzerland and more. Some tourist-oriented shops in the United Kingdom accept the euro. In Northern Ireland, as a border area, the euro is accepted in many shops.^[40] Also, a large number of petrol stations and motorway service areas in European countries outside the eurozone accept euros, and Bosnia and Herzegovina, Croatia, Poland and Serbia allow payment of highway tolls in euros.^[35]

Northern Cyprus

The application of EU law and treaties to Northern Cyprus is currently suspended.^[41] 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.^[42][43] However the exchange rate used by these businesses may not always reflect the true value of the currencies involved.^[44][45] The Cypriot euro coins, using both Greek and Turkish languages, have been designed to avoid any bias towards any particular area of the island,^[46] in keeping with both Greek and Turkish being the official languages of the Republic of Cyprus.^[47] Some in northern Cyprus have called for the unilateral adoption of the euro (similar to other states).^[35]

Zimbabwe

Since April 2009, the Zimbabwean dollar is no longer in active use after it was officially suspended by the government due to hyperinflation. The United States dollar (US$), South African rand (R), Botswanan pula (P), Pound sterling (£), Euro (€), Indian rupees (INR), Australian dollars (A$), Chinese yuan (元/¥), and Japanese yen (¥) are now used instead, along with U.S. Cent-denominated Zimbabwean Bond Coins .^[48][49]

Trading currency

In 1998, Cuba announced that it would replace the US dollar with the euro as its official currency for the purposes of international trading.^[50] 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.^[51]

In 2000, President of Iraq Saddam Hussein began the sale of his country's oil denominated in euros rather than US dollars since the majority of Iraqi oil trade was with the EU, India and China rather than the United States. Several other oil producing countries stated they would follow suit. But when Iraq was invaded in 2003, the new US administration immediately switched all sales of oil back to the US dollar. Also, since 2007 Iran has asked all petroleum customers to pay in non US dollar currency in response to American sanctions. This has resulted in the Iranian oil bourse trading in several currencies, predominantly the euro for European trade and either the yen or euros for sales in Asia.

Pegged currencies

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	7006379162200000000♠3,791,622	7004511290000000000♠51,129 km²	BAM	B&H convertible mark	1.95583	19991 January 1999	0.00%	DEM (from 21 November 1995)
	Bulgaria	7006738536700000000♠7,385,367	7005110910000000000♠110,910 km²	BGN	Bulgarian lev	1.95583	19991 January 1999	0.00%	DEM (from 1997)
	Comoros	7005690948000000000♠690,948	7003217000000000000♠2,170 km²	KMF	Comorian franc	491.9678	19991 January 1999	0.00%	FRF (from 23 November 1979)
	Denmark	7006547579100000000♠5,475,791	7004430940000000000♠43,094 km²	DKK	Danish krone	7.46038	19991 January 1999	2.25% (de facto 0.5%)	XEU	ERM2
	Cape Verde	7005499796000000000♠499,796	7003403300000000000♠4,033 km²	CVE	Cape Verdean escudo	110.265	19991 January 1999	0.00%	PTE (from middle of 1998)
	Morocco (inc. West Sahara)	7007336572590000000♠33,657,259	7005712550000000000♠712,550 km²	MAD	Moroccan dirham	≈ 10	19991 January 1999	–
	São Tomé e Príncipe	7005187356000000000♠187,356	7003100100000000000♠1,001 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	7007709319860000000♠70,931,986	7006326907700000000♠3,269,077 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	7007387501330000000♠38,750,133	7006275752800000000♠2,757,528 km²	XAF	central African CFA franc	655.957	19991 January 1999	0.00%	FRF (from 17 October 1948)
	XPF currency union; French Polynesia New Caledonia Wallis and Futuna	7005520938000000000♠520,938	7004195970000000000♠19,597 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. 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%.^[52]

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.

Since 2005, stamps issued by the Sovereign Military Order of Malta have been denominated in euros, although the Order's official currency remains the Maltese scudo.^[53] The Maltese scudo itself is pegged to the euro and is only recognised as legal tender within the Order.^[54]

Reserve currency status

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.^[55]

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.^[56] 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."^[57] 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).^[58] 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%.^[59]

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.^[60] 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.^[61] 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 before Eurozone accession, being issued in euro rather than the local currencies.^[62] The following table shows central banks allocated reserves in euros and US dollar. The percental composition of currencies of official foreign exchange reserves since 1995.^[63][64][65]

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.

See also

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

Notes

References

External links

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