The Euro
Because of the impact of the changes and the technical
requirements which the European Economic and Monetary Union
(EMU) brings with it, the Currency System family of software
and services includes special support for EMU currencies.
The European Union
The European Union (EU) is a dynamic institution, which
also reflects on the EMU process. Several waves of
accessions followed the original community of six countries,
bringing the total to 27 member states on February 1, 2020:
- 1957: Belgium, Germany, France, Italy, Luxembourg
and the Netherlands;
- 1973: Denmark, Ireland and the United Kingdom;
- 1981: Greece;
- 1986: Spain and Portugal;
- 1995: Austria, Finland and Sweden;
- 2004: Cyprus, the Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Malta, Poland, the Slovak Republic
and Slovenia;
- 2007: Bulgaria and Romania;
- 2013: Croatia;
- 2020: withdrawal of the United Kingdom ("Brexit").
The EMU
The process of achieving economic and monetary union was
set out in the 1957 Treaty of Rome and in subsequent
treaties (Maastricht Treaty of 1992, Amsterdam Treaty of
1997 and Lisbon Treaty of 2007) and decisions. The euro (currency code: EUR) is the
official currency of the European Union, and the EMU is the
process by which EU member states replace their national
currency with the euro and transfer management of monetary
policy to the European Central Bank.
When a state joins the EMU its national currency becomes
a sub-unit of the euro, at a fixed conversion rate with
respect to the euro. During the transition phase, in which
the national currency and the euro co-exist, a process
called "triangulation", which is supported by applications
such as Currency
Server, WorldCalc and
Euro Calculator, is
required to convert to and from the national currency and
any non-EMU currencies. At the end of the transition phase
the national currency is first replaced by euro banknotes
and coins, and then ceases to be legal tender. A first group
of twelve EU states completed this process between the end
of 2001 and the first half of 2002, after a transition phase
which lasted between two and three years. Member states that
adopt the euro after this point can choose from a number of
scenarios (e.g. a shorter transition period, including a
"big bang" option) that provide for additional flexibility,
also in consideration of the fact that euro banknotes and
coins are already in circulation. Following the initial
introduction, the euro replaced the former national
currencies of Slovenia in 2007, Cyprus and Malta in 2008,
Slovakia in 2009, Estonia in 2011, Latvia in 2014,
Lithuania in 2015 and Croatia in 2023. Bulgaria is expected to
adopt the euro in 2025.
Denmark (and the United Kingdom, which later withdrew
from the EU) was granted special "euro opt-out" status in
the Amsterdam Treaty, while Sweden decided not to meet the
EMU exchange rate criteria. These EU member states, like some of the countries which joined the EU after the introduction of the euro, still use their national currencies and to different degrees conduct their own monetary policies.
The Euro outside the EU
The euro plays a role in the exchange rate regime of more
than 50 countries outside the EU. The solutions adopted by
these countries range from very close or even full links to
the euro, such as the formal entitlement to use the euro as
legal tender, to looser types of anchoring, such as peg
arrangements and crawling fluctuation bands.
Non-EU countries such as Andorra, the Principality of Monaco, the
Republic of San Marino and Vatican City have not only
adopted the euro as their official currency, but are also
minting euro coins on the basis of formal arrangements with
the European Union.
The Future
Additional countries are expected to join the
European Union. Most or all of these countries
are likely to join the EMU, following a procedure which is
expected to be similar to the one which applied to the countries which
already adopted the euro. The Danish krone (DKK) and the Swedish krona
(SEK) may also join the EMU at any time.
In a speech held on March 21, 2002, Tommaso
Padoa-Schioppa, Member of the Executive Board of the
European Central Bank, said:
"Many policy-makers
in accession countries are already now advocating for
joining the euro sooner rather than later and this is indeed
a desirable perspective in principle, as it helps to keep
the reform prospect focused. Some have expressed their wish
to adopt the euro immediately after the two-year
participation in ERM II; others advocate for setting even
before EU accession a pre-determined timeframe to join the
euro area. Setting such a timeframe is said to anchor
policies towards the fulfillment of the Maastricht criteria,
thus providing the necessary incentive for virtuous economic
policies. It is also seen as an anchor in a potential
turbulent phase in financial markets, avoiding adverse
shocks and shifts in market sentiment in an environment of
free capital movement. In accession countries, however,
there are also policy makers that are arguing in the
opposite direction, for a possibly longer stay in the EU
before the adoption of the euro. Their arguments are based
on the fact that, as new EU members, countries will become
exposed to the full competition of the single market and to
the global capital market. Therefore, it remains to be seen
in their view at what point in time the economies can forego
the exchange rate as an adjustment tool in this new and
highly competitive environment."
Also in consideration of the fact that euro banknotes and
coins are already in circulation, the changeover scenario
applied to the first twelve participating member states may
not be appropriate or desirable for future euro-area entrants. The
regulations that applied to the first group of countries
which joined the EMU are have been updated to allow
for member states to adopt transitional periods that can be
significantly shorter than the one which applied to the
countries that established the EMU in 1999 (eleven EU
states), or joined it in 2001 (Greece).
Possible scenarios include:
- a "traditional" approach, whereby first the euro is
adopted as the currency of the respective member state,
followed by the introduction of euro banknotes and coins
at the end of the transitional period;
- a "big bang" approach, where the transition period,
if at all required to comply with applicable
regulations, lasts only one second;
- a "phasing out" approach, in which the euro is
introduced under a "big bang" transition, while use of
the national currency remains allowed within certain
contexts (e.g. accounts) and for a limited period of
time.
Other institutions in the Middle East, in Africa, in Asia
and in the Americas are studying the EMU experience and may
launch independent currency unions. The Currency System
family of software and services have
been designed to support present and future currency unions
and the possible dynamics involving existing and new
currencies and such unions, including each step that new EMU
members will go through and its implications (activation of
triangulation, change in legal tender, etc.)
Currency Server and the EMU
The Currency Server software specifically supports
the EMU by means of:
- Definition of EMU as a regime a currency may belong
to;
- Triangulation and rounding applied to EMU currencies
(as required by law);
- Handling of official EMU conversion rates and
precision values (as required by law);
- Preservation of internal exchange rate values
expressed in EUR (as required by law);
- Differentiation between constant EMU conversion
rates and fluctuating exchange rates (e.g. for
inactivity warnings);
- One-click reset of official EMU data (Active
Currencies tab of Currency Server Manager);
- Manual changes to regime and legal tender status
(All Currencies tab of Currency Server Manager);
- Automatic notification and one-click approval of
changes to regime and legal tender status (e.g.
beginning and end of EMU transition phase).
Euro Calculator, WorldCalc and the EMU
Euro Calculator,
WorldCalc and the other
custom client apps
specifically support the EMU by means of:
- Automatic collection of EMU updates together with
exchange rate data, with notification and one-click
approval of changes;
- Triangulation and rounding applied to EMU currencies
(as required by law);
- Handling of official EMU conversion rates and
precision values (as required by law);
- Preservation of internal exchange rate values
expressed in EUR (as required by law);
- One-click reset of official EMU data.
Your Organization and the EMU
If your organization is based in a country which is
scheduled to join the EMU or which is nearing completion of
the EMU transition phase, you probably already have a
corporate euro changeover plan. Similar transition plans are
in place at larger organizations outside the EU that are
indirectly affected by the EMU. Whether you have such a
changeover department or if instead you are the sole person
responsible for keeping your organization and system
up-to-date with EMU and with more general currency-related,
the Currency System range of currency-related software and
services was designed to
support you.
If you are planning to deploy Currency Server, we
recommend that you have a look at the "Quality Checklist"
and "Operational Procedures" sections in the "Getting
Started" chapter of the
software documentation. Currency Server includes an automatic notification and
update system designed to inform you about changes with
clear and detailed messages guiding you through any actions
which may be required (e.g. removal of a currency which
ceased to be legal tender, etc.)
Reference Documents
The following documents (in
PDF format)
published by the European Commission, Directorate General
II, Economic and Financial Affairs, Monetary matters, are
available:
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