Andorra is a microstate located in southeastern Europe bordering France and Spain. Formally known as the Principality of Andorra, the microstate is not a member of the European Union. However, Andorra does have a beneficial relationship with the EU with Andorra using the EU euro as its official currency.
Before the country’s adoption of the euro, Andorra did not have any official currency. However, due to the microstate’s close proximity to France and Spain, Andorra used these countries’ respective official currencies; the Spanish peseta as well as the French franc.
The Andorran Peseta
Introduced in 1936, the Spanish peseta was one of the two official currencies circulating in Andorra. It was known in the financial markets as the Andorran Peseta and abbreviated as ADP. Despite the Andorran Peseta’s recognition in international money markets, Andorra did not mint its variation of the peseta and relied completely on the currency issued by the Central Bank of Spain, The Banco de Espania. The Andorra Peseta also featured the subdivisions of the peseta, the centim, where 100 centims made up one Andorra Peseta. Spain ceased the issue of the peseta in 2001 after the adoption of the euro in 1999. However, the banknotes of the peseta were used in Andorra until 2002 when Andorra officially adopted the use of the euro.
The Andorran Franc
The French franc was used as the official currency in Andorra since its introduction in the early 20th century. While in circulation in Andorra, the franc was officially referred to as the Andorran Franc and was abbreviated as ADF or FF in the international money markets. It was also known by several nicknames including “balle,” “patate,” “brique,” “baton” and the “plaque.” Despite the Andorran Franc being recognized as a distinct currency in the international money markets, Andorra did not mint its currency and relied wholly on the currency issued by the Central Bank of France. In the late 20th century, France and many other European countries established a common monetary union and ceased using the franc as the official currency, adopting the European Euro instead. However, the Andorran Franc continued in circulation in Andorra until 2002 when the microstate introduced the euro as the official currency.
Unlike many European countries who adopted the euro, Andorra introduced the euro as the official currency despite not being a member of the European Union and not having any formal agreement with the Council of the European Union on the same. Andorra adopted the EU’s euro in 2002. However, due to its non-membership in the European Union, Andorra was not allowed to mint its coins which would be valid across the EU. The European Union and Andorra reached an agreement which was signed in June 2011 and was effected in April 1st, 2012, with the EU officially allowing Andorra to use the Euro as its official currency and given the permission to mint up to 2.4 million distinct euro coins. The euro coins began circulating in Andorra in January 2015 and exist in 10-cents, 20-cents, and 50-cents coins.
Andorra’s lenient tax laws enable the country to be a tax haven. The microstate attracts foreign companies to be incorporated in the country to evade strict taxation laws existing in their country of origin. This “tax haven” status was a major hindrance in the discussions to allow the use of the euro in Andorra with the European Union laying out new taxation policies which Andorra was supposed to follow.