European Currency Unit

The European Currency Unit ( or ECU) was a basket of the currencies of the European Community member states, used as the unit of account of the European Community before being replaced by the euro on 1 January 1999, at parity. The ECU itself replaced the European Unit of Account, also at parity, on 13 March 1979. The European Exchange Rate Mechanism attempted to minimize fluctuations between member state currencies and the ECU. The ECU was also used in some international financial transactions, where its advantage was that securities denominated in ECUs provided investors with the opportunity for foreign diversification without reliance on the currency of a single country.[1]

The ECU was conceived on 13 March 1979 as an internal accounting unit. It had the ISO 4217 currency code XEU.

Euro replaces ECU

On 1 January 1999, the euro (with the code EUR and symbol ) replaced the ECU, at the value €1 = 1 ECU. Unlike the ECU, the euro is a real currency, although not all member states participate (for details on euro membership see Eurozone). Two of the countries in the ECU basket of currencies, UK and Denmark, did not join the eurozone, and a third, Greece, joined late. On the other hand, Finland and Austria joined the eurozone from the beginning although their currencies were not part of the ECU basket (since they had joined the EU in 1995, two years after the ECU composition was "frozen")

Legal implications

Due to the ECU being used in some international financial transactions, there was a concern that foreign courts might not recognize the euro as the legal successor to the ECU. This was unlikely to be a problem, since it is a generally accepted principle of private international law that states determine their currencies, and that therefore states would accept the European Union legislation to that effect. However, for abundant caution, several foreign jurisdictions adopted legislation to ensure a smooth transition. Of particular importance, the U.S. states of Illinois and New York adopted legislation to ensure a large proportion of international financial contracts recognized the euro as the successor of the ECU.

Etymology

Although the acronym ECU is formed from English words, écu is also the name of an ancient French coin. That was one reason that a new name was devised for its successor currency, euro, which was felt not to favour any single language.[2]

Symbol

The currency's symbol, ₠ (U+20A0), comprises an interlaced C and E, which are the initial letters of the phrase 'European Community' in many European languages. However, this symbol was not widely used: few systems at the time could render it and in any case banks preferred (as with all currencies) to use the ISO code XEU.

Coins and notes

As the ECU was only an electronic unit of account and not a full currency, it did not have any official coins or notes that could be used for everyday transactions. However, various European countries and organisations like the European Parliament made commemorative and mock-up coins and notes. A common theme on the coins was usually celebrating European unity, such as celebrating membership of the European Union. In 1989, the government of the Netherlands issued a series of ECU coins from ₠​2 12 to ₠200, which could be spent in shops in The Hague, during the European Capital of Culture festival. Gibraltar issued commemorative coins from 1993 through 1996.[3]

Value determined by basket of currencies

Approximate national currency weights to the ECU value
Currency 1979-03-13–
1984-09-16
1984-09-17–
1989-09-21
1989-09-21–
1998-12-31
Belgium Belgian franc (BEF) 9.64% 8.57% 8.18%
Germany German mark (DEM) 32.98% 32.08% 31.96%
Denmark Danish krone (DKK) 3.06% 2.69% 2.65%
Spain Spanish peseta (ESP) 4.14%
France French franc (FRF) 19.83% 19.06% 20.32%
United Kingdom Pound sterling (GBP) 13.34% 14.98% 12.45%
Greece Greek drachma (GRD) 1.31% 0.44%
Republic of Ireland Irish pound (IEP) 1.15% 1.20% 1.09%
Italy Italian lira (ITL) 9.49% 9.98% 7.84%
Luxembourg Luxembourgish franc (LUF) 0.32%
Netherlands Dutch guilder (NLG) 10.51% 10.13% 9.98%
Portugal Portuguese escudo (PTE) 0.7%

See also

References

  1. ^ David L. Scott, Wall Street Words (3rd ed. 2003), p. 130.
  2. ^ Ungerer, Horst (1997). A Concise History of European Monetary Integration: From EPU to EMU. Westport, Conn: Quorum Books. p. 286. ISBN 089930981X. Retrieved 19 January 2016.
  3. ^ "Gibraltar coins" (PDF). Retrieved 2011-07-17.

External links

Asian Monetary Unit

The Asian Monetary Unit (AMU) is a basket of currencies proposed by the Japanese government's Research Institute of Economy, Trade and Industry (RIETI). It is similar to the European Currency Unit (ECU), predecessor to the euro.

The Asian Monetary Unit, which has been created as the joint project of 21st century COE project of Hitotsubashi University and RIETI, is a common currency basket composed of 13 East Asian currencies, such as ASEAN 10 plus Japan, China and South Korea. These data have been published on the website of RIETI since September 2005. After 4 years passed, a common currency basket composed of 13 AMU currencies plus three other countries, Australia, New Zealand and India, which are strongly connected with Asian countries, is newly created as "AMU-wide". The AMU-wide, which is a common currency basket composed of wider range of currencies, will be expected to use as a surveillance indicator corresponding to the extensive regional economies.

The calculation methodology of the AMU-wide and AMU-wide Deviation Indicators are same as those of the AMU. The benchmark period is defined as:

the total trade balance of member countries, and

the total trade balance of the member countries (excluding Japan) with Japan, and

the total trade balance of member countries with the rest of worldshould all be relatively close to zero.

Commemorative coins of Ireland

Various commemorative coins denominated in Irish currency were issued until 2002, when the Irish pound (IEP/IR£) came to an end and was superseded by the euro. Since then there have been Irish commemorative coins denominated in euro.

Currencies of the European Union

There are eleven currencies of the European Union as of 2018 used officially by member states. The euro accounts for the majority of the member states with the remainder operating independent monetary policies. Those European Union states that have adopted it are known as the eurozone and share the European Central Bank (ECB). The ECB and the national central banks of all EU countries, including those who operate an independent currency, are part of the European System of Central Banks.

Currency basket

A currency basket is a portfolio of selected currencies with different weightings. A currency basket is commonly used to minimize the risk of currency fluctuations. An example of a currency basket is the European Currency Unit that was used by the European Community member states as the unit of account before being replaced by the euro. Another example is the special drawing rights of the International Monetary Fund.

Euro

The euro (sign: €; code: EUR) is the official currency of 19 of the 28 member states of the European Union. This group of states is known as the eurozone or euro area, and counts about 343 million citizens as of 2019. The euro is the second largest and second most traded currency in the foreign exchange market after the United States dollar. The euro is subdivided into 100 cents.

The currency is also used officially by the institutions of the European Union, by four European microstates that are not EU members, as well as unilaterally by Montenegro and Kosovo. Outside Europe, a number of special territories of EU members also use the euro as their currency. Additionally, 240 million people worldwide as of 2018 use currencies pegged to the euro.The euro is the second largest reserve currency as well as the second most traded currency in the world after the United States dollar.

As of August 2018, with more than €1.2 trillion in circulation, the euro has one of the highest combined values of banknotes and coins in circulation in the world, having surpassed the U.S. dollar.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). Physical euro coins and banknotes entered into circulation on 1 January 2002, making it the day-to-day operating currency of its original members, and by March 2002 it had completely replaced the former currencies. While the euro dropped subsequently to US$0.83 within two years (26 October 2000), it has traded above the U.S. dollar since the end of 2002, peaking at US$1.60 on 18 July 2008. In late 2009, the euro became immersed in the European sovereign-debt crisis, which led to the creation of the European Financial Stability Facility as well as other reforms aimed at stabilising and strengthening the currency.

Euro calculator

A euro calculator is a very popular type of calculator in European countries (see eurozone) that adopted the euro as their official monetary unit. It functions like any other normal calculator, but it also includes a special function which allows one to convert a value expressed in the previously official unit (the peseta in Spain, for example) to the new value in euros, or vice versa. Its use became very popular within the population and commerce of these countries especially during the first few months after adopting the euro.

As so many were produced, they are also found outside the eurozone to help staff with conversions at airports or railway stations where the euro has a strong presence.

Euro sign

The euro sign (€) is the currency sign used for the euro, the official currency of the European Union (EU) and other non-EU countries (Kosovo and Montenegro). The design was presented to the public by the European Commission on 12 December 1996. It consists of a stylized letter E (or epsilon), crossed by two lines instead of one. The character is encoded in Unicode at U+20AC € EURO SIGN (HTML € · €). In English, the sign precedes the value (for instance, €10, not 10 €, unlike most other European languages). In some style guides, the euro sign is not spaced (10€).

Europa coin programme

The Europa Coin Programme, also known as the European Silver Programme, or the Eurostar Programme, is an initiative dedicated to the issuance of collector-oriented legal tender coins in precious metals to celebrate European identity. The issuing authorities of EU member countries voluntarily contribute coins to the Europa Coin Programme. Multiple countries have participated in the programme, beginning in 2004. Some coins are denominated in euro, others are denominated in other currencies. Europa coins are legal tender.

European Exchange Rate Mechanism

The European Exchange Rate Mechanism (ERM) was a system introduced by the European Economic Community on 13 March 1979, as part of the European Monetary System (EMS), to reduce exchange rate variability and achieve monetary stability in Europe, in preparation for Economic and Monetary Union and the introduction of a single currency, the euro, which took place on 1 January 1999.

After the adoption of the euro, policy changed to linking currencies of EU countries outside the eurozone to the euro (having the common currency as a central point). The goal was to improve the stability of those currencies, as well as to gain an evaluation mechanism for potential eurozone members. This mechanism is known as ERM II and has superseded ERM. Currently there is just one currency in the ERM II, the Danish krone.

European Monetary Cooperation Fund

The European Monetary Cooperation Fund (EMCF) was an institution and a fund established in 1973 by members of the European Exchange Rate Mechanism (ERM) of the European Union (EU) to stabilise exchange rates. It was succeeded by the European Monetary Institute which is now part of the European Central Bank.

European Monetary System

European Monetary System (EMS) was an arrangement established in 1979 under the Jenkins European Commission where most nations of the European Economic Community (EEC) linked their currencies to prevent large fluctuations relative to one another.

European Unit of Account

The European Unit of Account (EUA) was a unit of account used in the European Communities from 1975 to 1979, when it was replaced at parity by the European Currency Unit, in turn replaced at parity in 1999 by the euro.

Initially it was used for Lomé Convention and European Investment Bank operations before being gradually introduced into other sectors of Community activity.The EUA was a basket of European currencies, originally designed to have the same value in mid-1974 as the IMF special drawing rights basket, both worth US$1.20635; they immediately moved apart in value. Different units of account had previously been used for different purposes, including the budget, the European Coal and Steel Community, and the Common Agriculture Policy following the abandonment of the gold parity unit of account in the early 1970s in the wake of the collapse of the Bretton Woods system.

Gold parity unit of account

The gold parity unit of account was the unit of account used by the European Coal and Steel Community (ECSC) from 1958, and in the European Economic Community from 1962 until the early 1970s. The unit was fixed to the value of gold under the Bretton Woods system, and was equivalent to the US dollar which the ECSC had previously used.After the collapse of the Bretton Woods system, more than one unit of account was used until the European Unit of Account (EUA) was eventually adopted as a universal replacement from 1977. The EUA was replaced, in turn, by the European Currency Unit in 1981.

List of euro mints

Several euro mints exist in the eurozone. Not every eurozone member state has its own mint to produce euro coins.

Mincovňa Kremnica, Slovakia

Slovak euro coins

Staatliche Münzen Baden-Württemberg

German euro coins

Latvian euro coins

Suomen Rahapaja (Mint of Finland)

Estonian euro coins

Greek euro coins

Luxembourgish euro coins

Slovenian euro coins

Cypriot euro coins

Irish euro coins

Istituto Poligrafico e Zecca dello Stato

Vatican euro coins

SUCRE

The SUCRE (Spanish: Sistema Unitario de Compensación Regional, English: Unified System for Regional Compensation) is a regional currency proposed for commercial exchanges between members of the regional trade bloc Bolivarian Alliance for the Americas (ALBA), which was created as an alternative to the Free Trade Agreement of the Americas (FTAA). The SUCRE is intended to replace the US dollar as a medium of exchange in order to decrease US influence and control of Latin American economies and to increase stability of regional markets.

The SUCRE was first used as a virtual currency in 2010 in two transactions between Ecuador and Venezuela. International trade between member states in SUCRE reached its maximum in 2012 with 2,646 transactions worth almost 1,066 million US dollars. In each following year trade in SUCRE shrunk. In 2015 there were 752 transactions worth around 345 million dollars.The plan for the introduction of the SUCRE, initially as a virtual currency, parallels the European Union's introduction of the euro in 1999, which was preceded by the European Currency Unit in 1979. The SUCRE was intended as the unit of account for all transactions in a clearinghouse. Its value derives from a basket of currencies from the member countries, weighted according to the relative size of the economies.The treaty explicitly limits the backing assets of the basket of currencies to financial securities denominated in the respective currencies of the member states. Prohibition of alternative forms of currency backing (such as commodity backing) presents an inequity for Ecuador that, alone in the group, does not have its own national currency (it uses the US dollar).

In the case of ALBA members Dominica, Saint Vincent and the Grenadines, and Antigua and Barbuda, the new currency poses a dilemma as they are already a member of the Eastern Caribbean Currency Union and use the East Caribbean dollar, although none of them have agreed to the treaty establishing the SUCRE and the regional payments clearinghouse.The SUCRE is named after Antonio José de Sucre, a leading figure in Latin America's independence struggle. Agreement in general terms for the currency was declared in 2009. The formal treaty establishing the regional payments clearinghouse was signed by the six Latin American presidents in Cochabamba, Bolivia, on October 17, 2009. (The former currency of Ecuador, one of the SUCRE's users, was also called the sucre, but was abandoned and replaced by the US dollar after the economic crisis in 1999).

This currency has code XSU in ISO 4217 standard currency list In 2013 Uruguay joined the currency.In 2018, the government of Venezuela proposed using the Petro, instead, for trade within ALBA.

Vatican lira

The lira (plural lire) was the currency of the Vatican City between 1929 and 2002.

WOCU

The World Currency Unit WOCU (XCU) is an EU trademarked synthetic global currency quotation. It is derived from a weighted basket of currencies of fiat currency pairs covering the top 20 economies of the world. Each country’s currency representation is weighted by its relative proportion of the top 20 economies as measured by GDP. The WOCU’s nearest comparator was the more narrowly constructed ECU, the European Currency Unit basket that preceded the successor Euro.

The WOCU offers a transparent, relatively stable currency quotation as a hub currency reference for cross border trade to reduce volatility and risk. It reacts to the economic growth and decline of constituent country economies, adjusting the prominence of their respective currencies. The WOCU is outputted in up to real time, in sub second updates. Input FX data is sourced from global aggregated FX data providers.

Countries within the Euro zone (those that have replaced their national currencies with the Euro) are treated as individual countries in the WOCU weighting calculation. This means that some countries within the Euro zone are included, such as Germany, whilst others are excluded, such as Ireland, purely on the basis of that country’s top 20 GDP qualification or disqualification.

The GDP values of each country issued by the International Monetary Fund in its World Economic Outlook forecast are reviewed as these figures become available and a biannual re-weighting of the benchmark basket performed. This means that the member countries included in the basket, and therefore their currencies, may change up to twice a year either by the weighting for their currency being adjusted (up or down) or by their fiat currency being promoted into or demoted out of the basket. This generally results in the basket consisting of 15 separate currencies, the Euro currency being common to normally 6 nation states included in the WOCU basket. Review and approval of weighting adjustments is subject to a confirmation process overseen by the WOCU Oversight Committee, a body consisting of a majority of independent persons qualified and authorised to approve or reject any change to the constitution of the WOCU. In the circumstance of a reweighting where a country changes its currency, the replacement country currency FX data will form exactly the same proportion of the WOCU and the former currency will be dropped (or reduced in the case of the Euro) in the same proportion at the same time that the relevant country officially introduces its new currency, which shall be assessed and approved by the WOCU Oversight Committee.

The WOCU is used to price commodities such as bunker fuel and as a reference currency for global investors and companies seeking to mitigate bilateral exchange rate volatility.In early 2019 Unite Global AS, a Norway incorporated provider of a Correspondent banking hub platform for cross border banking payments and real-time settlement revealed it was in discussions for the issuance and distribution of WOCU currency .

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