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Euro Exchange Rate

By: EconomyWatch Date: 23 November 2010

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The Euro is the official currency of 16 of the 27 member states of the European Union (EU). These 16 states include some of the most technologically advanced countries of the European continent and are collectively known as the Eurozone. The Euro is an important international reserve currency. Euros have surpassed the US dollar with the highest combined value of cash in circulation in the world.

Benefits of the Euro

The most important implications of having a common currency, the Euro, are:

Exchange rate certainty while traveling across Europe

No exchange risk and, therefore, no cost of hedging against it

No transaction costs

Increased transparency and fewer transactions for importers and exporters

Increased liquidity in the ‘United Euro’ financial market

Euro: Fact File

The Euro is an abbreviation for 'European Operational Research Societies'. The association is a non-profit organization established in Brussels, Belgium. The Euro is administered by the European Central Bank (ECB) based in Frankfurt, and theEurosystem, comprising of the various central banks of the Eurozone nations. The Euro was recognized in the Maastricht Treaty in 1992. The currency was introduced initially in non-physical forms, such as travelers' checks and electronic banking, in 1999. The currency was officially introduced in the form of notes and coins on January 1, 2002.

Euro Exchange Rate: US Dollar vs. Euro

After the Euro was introduced as a cash currency in 2002, the US dollar began to steadily depreciate in value. This was due to a persistent increase in the US trade and budget deficit. By December 2004, the US dollar started fallingagainst all major currencies and the Euro rose above $1.36/Euro for the first time. An interest rate reduction by the US FederalReserve on September 18, 2007 caused the US dollar to decline to new record lows of below $1.43 by October. In 2008, the Eurostrengthened further to around $1.60. At the end of March 2009, the Euro stood at $1.3308.

Effect of the Euro on Other Currencies

A number of currencies are pegged to the Euro. Those are the B&H konvertibilna marka, Lithuanian litas, Bulgarian lev, Moroccan dirham, Cape Verdean escudo, Pacific franc, Danish krone, Slovak koruna, Estonian kroon, Central African CFA franc,Hungarian forint, West African CFA and the Comorian franc. This implies that the value of these currencies would dependsignificantly on the performance of the Euro. If the Euro exchange rate goes up, the value of these currencies would appreciate as well and if the Euro falls, the values of these currencies are sure to come down as well. Hence, the Euro exchange rate occupies a critical position in the context of world finance.

Find out more about European Currencies.