International Status and Usage of the Euro: A Global Perspective

The euro is the official currency of 19 of the 27 member states of the European Union. It's used by over 340 million people, making it one of the most widely used currencies in the world.

The euro is widely accepted in many countries, including those in the European Union, but it's not the official currency of all member states. In fact, nine member states, such as Denmark and the United Kingdom, have opted out of adopting the euro.

Many countries have pegged their currencies to the euro, which means their exchange rates are tied to the euro's value. This can provide economic stability and make international trade easier.

The euro is a widely used currency in the world, but its international status and usage are not as straightforward as it seems. The euro is the official currency of the European Union, which has 27 member states.

Many countries outside of the EU also use the euro as their official currency, including Monaco, San Marino, and the Vatican City. These countries have adopted the euro as part of their economic integration with the EU.

The euro is widely accepted as a form of payment in many countries, particularly in those that have a strong economic relationship with the EU. In 2020, the euro was the second most widely traded currency in the world, after the US dollar.

However, the euro is not widely used in many parts of the world, particularly in countries that have a strong tradition of using their own currencies. In some countries, the euro is not accepted as a form of payment, even in tourist areas.

The euro's international status is also influenced by the EU's economic policies and agreements with other countries. The EU has signed economic partnership agreements with several countries, which have led to the adoption of the euro as a form of currency in some of these countries.

The euro is a major global reserve currency, the second most widely held international reserve currency after the U.S. dollar. Its share of international reserves has risen from 23.65% in 2002 to a peak of 27.66% in 2009 before declining due to the European debt crisis.

In 1998, Cuba announced that it would replace the U.S. dollar with the euro as its official currency for the purposes of international trading. On 1 December 2002, North Korea did the same, and Syria followed suit in 2006.

The euro is also widely accepted in shops in countries neighboring the eurozone, such as Poland, the Czech Republic, and Hungary, and is accepted at many petrol stations and motorway service areas in European countries outside the eurozone.

The euro has gained significant traction in international trade, with several countries adopting it as their official currency for this purpose. Cuba, North Korea, and Syria have all replaced the US dollar with the euro for international trading.

In 2018, Venezuela's government announced that foreign exchange government auctions would no longer be quoted in US dollars and would use euros, Chinese yuan, and other hard currencies instead.

Some countries have pegged their currencies to the euro, which provides a safety net for their economies. The Bulgarian lev, for example, is pegged to the euro through a currency board.

The Moroccan Dirham has been historically pegged to a basket of currencies, including the Euro and the US Dollar. In 2015, the Central Bank updated the weights of the peg to 60% for the Euro and 40% for the US dollar.

The convertible mark, the currency of Bosnia and Herzegovina, was fixed to 1 German mark when it was introduced. Consequently, after the introduction of the euro, the convertible mark has used the German-mark-to-euro rate at 1.95583 BAM per euro.

Here are some countries that have pegged their currencies to the euro:

In various countries, the euro is accepted by some merchants despite not being the official currency there.

It's not uncommon to see euros accepted in tourist areas or among international businesses, especially in countries with a strong European influence.

The euro is sometimes used for pricing purposes even when actual payments are made in the official currency, such as for real estate transactions.

In some European countries outside the eurozone, like Poland, the Czech Republic, and Hungary, you can often find shops that accept euros in border areas and capitals near Germany, Austria, Slovenia, and Slovakia.

The euro is also widely accepted at petrol stations and motorway service areas in these countries, making it a convenient option for travelers.

In fact, many petrol stations in Poland, as well as Bosnia and Herzegovina and Serbia, allow payment of highway tolls in euros.

Some laws in non-eurozone countries, including EEA countries, explicitly include the euro, such as in money laundering laws, where specific euro amounts trigger certain rules.

This means that in certain areas, like New Caledonia and French Polynesia, you can make euro payments alongside the local currency, the CFP Franc.

In the United Kingdom, you can find some tourist-oriented shops that accept the euro.

The euro is also accepted in Northern Ireland, which shares a land border with the eurozone, and many chain stores there take it.

The euro is used in various regions outside the European Union, including French territories and a British territory. One notable example is Akrotiri and Dhekelia, a UK dependent territory with a population of 14,500, which adopted the euro on January 1, 2008, to align with Cyprus.

The French overseas territories of Saint-Pierre-et-Miquelon and French Southern and Antarctic Lands also use the euro. Saint-Pierre-et-Miquelon, with a population of 6,125, adopted the euro on January 1, 1999, as an Overseas Country and Territory (OCT) of France. French Southern and Antarctic Lands, with a population of 140, also adopted the euro on January 1, 1999, as an OCT of France.

Saint-Barthélemy, a French overseas collectivity with a population of 8,823, adopted the euro on January 1, 1999, and later signed a monetary agreement to continue using the euro when it changed its status to an OCT in 2012.

The table below summarizes the territories outside the EU that use the euro:

The euro has made significant strides in its global potential, with various countries accepting it as a form of payment despite not being the official currency.

In fact, some countries have even made the euro their official currency for international trading purposes, such as Cuba, North Korea, and Syria. Additionally, Iran has asked its petroleum customers to pay in non-U.S. dollar currency, with the euro being the primary choice for European trade.

The euro's acceptance in these countries is a testament to its growing global influence. Its usage is not limited to just international trade, as it's also used for pricing purposes in some countries, even when actual payments are made in the official currency.

The euro's global potential is also reflected in its usage in various currencies, including the Iranian oil bourse, which trades predominantly in euros for European trade.

A stronger global role for the euro might lead to more volatile capital flows in and out of the euro area.

The Bundesbank has been cautious about the euro's global importance, as seen in their decision not to actively encourage the international use of the DMark.

One potential drawback of the euro's increased global role is that it might make the euro area more susceptible to external economic shocks.

The Bundesbank's experience with the DMark suggests that increased global use of a currency can have unintended consequences.

Pegging to the euro instead of the USD or a basket, as China might consider, is a complex decision that requires careful weighing of the pros and cons.

The euro has a significant presence in global reserves, with its share of international reserves rising from 23.65% in 2002 to a peak of 27.66% in 2009.

The euro's status as a major reserve currency is a result of inheriting this position from the German mark. Former Federal Reserve Chairman Alan Greenspan even predicted in 2007 that the euro could replace the U.S. dollar as the world's primary reserve currency.

Despite this potential, the euro's share of global reserves fell to 19% by year-end 2015 due to the European debt crisis. This decline raised doubts about the euro's stability and future existence.

As of 2020, the euro's share of global reserves stands at 21%, while the U.S. dollar remains the primary reserve currency with a 59% share.

The international role of the euro has been on the agenda since the first concepts of EMU, with some economists arguing it has some economic costs and benefits as well as some geopolitical advantages.

To increase the global role for the euro, the EU would need to overcome its decreasing economic weight and lack of hard power. The EU's geopolitical power is a zero-sum game, where our gain means someone else's loss, and the main global geopolitical competition will be between the US and China.

A greater supply of eurobonds is often mentioned as a way to deliver a substantially greater global role for the euro, but a greater supply of AAA-rated bonds in euro could be more quickly achieved through large Member States putting their fiscal house in order.

There are three scenarios for the euro's global role: Business As Usual, Fiscal Union, and Minimum Model. The Minimum Model assumes that member states understand that stability starts at home, accept the no-bailout, and agree that occasional crises may demand a flexible loan-based support mechanism.

The paradox of the euro as a global currency is that the Minimum Model offers the best prospects for a stable euro, but it cannot offer sufficient economic cloud based on deliberately increasing the issuance of eurobonds.

The euro's global potential is a topic of ongoing discussion, with some arguing that it's on the rise, while others see it as a zero-sum game. The EU's geopolitical power is indeed a zero-sum game, where our gain might mean someone else's loss, particularly in the main global competition between the US and China.

In theory, an international role for the euro has both economic costs and benefits, as well as geopolitical advantages. However, the scope for increasing the global role of the euro is limited due to the decreasing economic weight of the euro area.

A greater supply of eurobonds is often mentioned as a way to boost the euro's global role, but a greater supply of AAA-rated bonds in euros could be achieved more quickly by large Member States putting their fiscal house in order.

The Business As Usual scenario, where member states regularly fight over economic governance, will not deliver the trust in the permanency of eurobonds that financial markets want. In contrast, the Minimum Model scenario assumes that member states understand that stability starts at home, accept the no-bailout clause, and agree to a flexible loan-based support mechanism to prevent a liquidity crisis from developing into a systemic crisis.

Here are the three scenarios for the euro's global role, along with their potential outcomes:

The paradox of the euro as a global currency is that the Minimum Model offers the best prospects for a stable euro, even though it cannot provide sufficient economic cloud based on deliberately increasing the issuance of eurobonds.

The euro is widely accepted by some merchants in countries with another official currency, and it's even used for pricing purposes in real estate.

In fact, the euro has been adopted as an official currency for international trading purposes in several countries, including Cuba, North Korea, and Syria. This is because the euro is seen as a more stable and widely accepted currency than other options.

As of 2021, the euro holds around 21% of global foreign exchange reserves, a significant share that's still dwarfed by the US dollar's 59%. However, the euro's share of reserves has been growing steadily over the years.

The euro's status as a major global reserve currency is a testament to its stability and widespread acceptance, and it's not hard to see why countries like Iran and Venezuela have turned to the euro as a way to circumvent US sanctions.

The euro has several alleged advantages to its international status. The euro and the dollar are already relatively equal in terms of banknotes circulating abroad, with both currencies making up around 5% of GDP.

One of the supposed benefits of being a global reserve currency is the implicit interest earnings on the sums held abroad. This is estimated to be around 0.15% of GDP.

Lower interest rates are also thought to be a perk of being a global reserve currency. However, US interest rates have been slightly higher than those in the euro area over the last 20 years.

The euro has a stable role as an international currency, in proportion to the weight of the eurozone economy.