As of 2015, there were 11 currencies in use within the European Union. The Euro is the principal currency of the Eurozone. All Eurozone states are required to adopt the Euro as their primary currency except for Denmark and United Kingdom. The two countries legally opted out of the EU treaties. Other currencies of the European Union are the British pound, Danish Krone, Swiss Franc, and the Swedish Krona.
Euro: The Eurozone Currency
The Euro is Eurozone’s official currency. Eurozone is comprised of 19 member states out of the 28 states that constitute the European Union. The Euro currency emerged from the 1992 Maastricht Treaty. Member states were required to meet strict criteria to participate in the currency. The United Kingdom and Denmark sought exemption from the monetary union at the inception of the Eurozone. The currency was introduced in the member states in electronic form on January 1st, 1999. On January 1st, 2002, the newly minted Euro notes and coins came into circulation. The Euro is widely used as the official currency by countries in the European Union and even outside the Union. In world rankings, the Euro is the second most traded currency after the US Dollar. It is also ranked as the world’s second-largest reserve currency. The European Central Bank (ECB) manages the Euro alongside the central banks of the Eurozone countries (Euro system).
The Pound Sterling is the oldest currency still in use. It is popularly referred to as the Pound. The Pound was used as a unit of account in ancient England. It represented 240 silver pennies and the weight of one pound of silver. Over the years, the Pound evolved into Britain’s modern currency.The currency is used in several countries alongside its variations. The sterling pound ranks fourth in the list of most traded currencies. The Bank of England administers the Pound Sterling and monitors some Banknotes in circulation.
The Danish Krone is Denmark’s official currency. It is also used as the official currency in Greenland and Faroe Islands. The name translates to “Danish Crown” in English. From as early as 1020, Denmark had some form of organized minting in the country. The earliest form of the Danish Krone can be traced back to 1619. The currency went through several overhauls in attempts to restore public trust as the unit of exchange. Currently, the Danish Krone is pegged to the Euro despite Denmark’s reluctance to join the Eurozone. The krone has 11 denominations.
The Swiss Franc is the official legal tender in Switzerland and Liechtenstein. The currency is also used in the Italian enclave of Campione d'Italia. The Swiss Franc was introduced as the official currency of Switzerland in 1850. The currency is popularly identified as a safe-haven currency and therefore has high demand in times of economic turbulence. For instance, during the sovereign debt crisis in Greece in 2011, the Swiss Franc was in high demand. The Swiss Franc is the sixth largest reserve currency in the world. The Swiss Central Bank manages the currency.
Swedish Krona is the legal tender of Sweden. It has been the official currency in Sweden since 1873. The Swedish Krona is rated among the most traded currencies in the world. Swedish voters rejected the plan to adopt the Euro in a referendum held on September 14th, 2003. The use of cash is steadily declining in Sweden and is being replaced by an electronic currency known as e-krona.
European Union’s Common Currency
The European Union’s decision to have a common currency is a good economic decision. The single currency has several benefits including the increased trade within the region, eliminates exchange costs incurred by businesses transacting across borders, and eliminates exchange rate fluctuation risk. European Union member states have gained substantially from the use of a common currency.