How and why did Europe set up its single currency How and wh

Solution

Answer: The reason of setting up single currency was both a strong economic case for moving towards a single currency and a rare political opportunity for implementing it around 1990. After long struggle of around 10 years and after number of proposals, on 1 January 1999 Europe was finally able to set up its single currency. After tough negotiations, particularly due to opposition from the United Kingdom, the Maastricht Treaty entered into force in 1993 with the goal of creating an economic and monetary union by 1999 for all EU states except the UK and Denmark. The name euro was officially adopted on 16 December 1995 in Madrid. The euro was introduced to world financial markets as an accounting currency on 1 January 1999, replacing the former European Currency Unit (ECU) at a ratio of 1:1 (US$1.1743).

History behind the Euro setup

First ideas of an economic and monetary union in Europe were raised well before establishing the European Communities. At this time memories of the Latin Monetary Union involving principally France, Italy, Belgium and Switzerland and which, for practical purposes, had disintegrated following the First World War, figured prominently in the minds of policy makers. The report was published in October 1970 and recommended centralisation of the national macroeconomic policies entailing \"the total and irreversible fixing of parity rates and the complete liberation of movements of capital. But US President Richard Nixon removed the gold backing from the US dollar, causing a collapse in the Bretton Woods systemthat managed to affect all of the world\'s major currencies.

Finally Delors\' second stage began in 1994 with creation of the European Monetary Institute, succeeding the EMCF, under Maastricht. They met for the first time on 12 January under its first president, Alexandre Lamfalussy. After much disagreement, in December 1995 the name euro was adopted for the new currency (replacing the name Ecu used for the previous accounting currency).

From then till date 19 out of 28 member states use the euro and this group of states is known as the eurozone. Today it is the second most traded currency in the foreign exchange market after the United States dollar. Further, each euro is subdivided into 100 cents.