On January 1, 2002 twelve countries in Europe* woke up to a brand new currency and over the following two months would see their national currencies phased out forever. In the most ambitious currency change the world has ever seen, more than 14.5 billion notes and 56 billion coins were distributed around the 12 participating countries and major public awareness campaigns were undertaken to ensure that the transition runs as smoothly as possible.

The Origins of the Euro

Since the end of World War II European currencies had been loosely linked to the United States dollar in a system set up at the Bretton Woods Conference, which aimed to iron out wild exchange rate fluctuations following the abandonment of the gold standard. This system was already under pressure from the decline of sterling and the United States' involvement in the Vietnam War, but when OPEC restricted oil supplies in response to the 1973 Yom Kippur War, the resulting rise in barrel prices finally caused the collapse of the Bretton Woods System. In 1979 the European Community (now the European Union) nations of the European Monetary System established an Exchange Rate Mechanism, whereby member states agreed to limit the fluctuations of their national currencies within a fixed band. The 1992 Maastricht Treaty proposed a single currency between these nations — the United Kingdom, Denmark, and later Sweden opted out of these plans — and established the rules for joining, which included targets for inflation, interest rates, and budget deficits. The participating countries decided on the name "euro" at a summit in Madrid in 1995, and the currency was launched on January 1, 1999. For the first two years of its existence, the euro would only be traded electronically by banks, foreign exchange dealers, and stock markets leading up to the full launch of the paper and coin currency in 2002.

What's It Worth?

When the euro was launched in 1999, 1 was worth US $1.17 or 71 British pence. However, the weakness of the eurozone economies compared with that of the United States, combined with the inexperience of the European Central Bank in dealing with the international markets, has meant that since its launch the value of the euro has declined significantly. In December 2001, 1 was worth little more than 89 cents or 63 pence, a 20 per cent drop on its initial value. This has meant that the countries of the eurozone have been able to export goods at a cheaper price, but it has not visibly improved their economies as would have been expected. Indeed, in the short term there may be inflationary pressure as shops round up their prices to fit the new currency.

How Will It Affect Me?

One of the major headaches for participating countries has been the conversion of public telephones, vending machines, and shopping trolleys to accept euro coins. Although a conversion process has been in full swing since before 1999, there are reports that some countries are not ready for the euro. The notes and coins of the 12 national currencies ceased to be legal tender by the last day of February, although most banks would continue to exchange the currency notes for several years.

Future of the Euro

Those members of the European Union who chose not to join the single currency may well do so in the next few years. Although Denmark voted "no" in a referendum in September 2000, it is thought that the Danish government will hold a second referendum soon. In the United Kingdom, Chancellor of the Exchequer Gordon Brown has established five economic tests that will determine when the pound may be replaced by the euro, and the government will probably hold a referendum before 2005. And the plans to extend the European Union to Central and Eastern Europe in the next decade will mean countries such as Lithuania, Poland, and Hungary may one day choose to join the euro.

So what dose it look like?

Notes
Known as "euros" there are seven notes designed by the Austrian artist Robert Kalina. The designs show the "seven ages" of European development, with windows and gateways on the front, and bridges on the back. There has been some concern that the larger denomination notes—a 500 note is worth approximately ￡315 at the current exchange rate — will be rich pickings for counterfeiters, especially in the early days as people get used to the new currency. The ECB is relying on an assortment of security measures to protect the currency, from the look and feel of the paper to holograms and incandescent strips.

Coins
There are eight coins designed by the Belgian artist Luc Luycx. All euro coins are round, but have differences in composition, weight, thickness, and milling to ensure that the blind can easily distinguish between them. On the front there is a European design, common to all coins, and on the back a "national" design from the central bank of issue. For instance, German coins will have the German eagle on the higher denominations, the Brandenburg Gate on the middle denominations, and an oak twig on the lower denominations. Despite these "national identities", all coins can be spent throughout the eurozone regardless of their origin.