Even though it is commonly referred to as the Eurozone, the ECB refers to the group of countries which adopt the euro as the Euro Area and the monetary system which uses the euro as the Eurosystem.
The euro has been provided with the International Organization for Standardization (ISO) 4217 currency code of EUR. More commonly the euro is represented by the symbol €. Reflecting the first letter (E) of “Europe” and the roots of European civilization, the symbol was inspired by the Greek letter epsilon (see attached image).
In With the New Euro
On January 1, 2002 an amazing thing happened: Twelve of the sixteen European Union (EU) member countries lost a part of their unique heritage. The German mark, French franc, Belgian franc, Dutch guilder, Italian lira, Greek drachma, Spanish peseta, Portuguese escudo, Finnish markka, Luxembourg franc, Austrian schilling and Irish pound were replaced by one currency.
Although the governments and some financial institutions in these countries were already trading in virtual euros since 1999 (2001 for Greece), on the dawn of 2002; foggy headed revelers brought in the new year with more than fireworks. Automatic Teller Machines (ATMs) in 12 countries were now delivering a common set of banknotes.
Euro as Sole Legal Tender
Only two months after the introduction of the euro banknotes and coins, the legal tender in all 12 countries changed completely from the national currencies. Allowing for a period of transition, national currencies were still being used for transactions through to midnight on February 28, 2002. Following this date, national currencies were still being accepted for conversion to the euro, but officially only the euro was now allowed for legal tender.
Out With the Old European Currencies
By the end of February 2002, the value of national currency banknotes from the 12 Euro Area countries in circulation had dropped from 270 billion euros at the start of the year, to 42 billion euros. During the same period the value of euro banknotes in circulation jumped from 131 billion to 242 billion.
As a statistical indicator to monitor the rate of substitution of euros for the affected national currencies, the ECB used the euro progress rate (EPR). By February 26, 2002 the ECB reported that the EPR had risen close to the maximum expected of just over 85 percent. Due to loss and collectors of national currencies, it was not expected that 100 percent of banknotes would be exchanged.
New Members to the Euro Area
In 2007 the first of the twelve countries that have joined the EU since 2004 replaced their national currency with the euro. Slovenia was followed by Cyprus and Malta in 2008 and by Slovakia in 2009; expanding the Euro Area club to 16 countries.
The ECB expects Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Romania to replace their national currencies over the next few years.
Replacing Old Currency with the Euro
Hoarders need not despair: If national currencies show up in mattresses or pockets of old blue jeans there may—depending on the country of origin—be time to exchange them for euros through the national central bank.
Austria, Belgium, Germany, Ireland, Luxembourg, Slovakia, Slovenia and Spain have chosen to replace banknotes on an unlimited basis. The other countries have chosen to limit the deadline for exchanging their banknotes. To change coins, only Germany, Ireland, Spain and Austria have decided to provide an unlimited period for exchange. (See attached table for details)
Missing members of the Euro Area
Although the ECB is expecting all the countries who have joined the EU since 2004 to play, there still remain three EU member countries who are not members of the Euro Area. Denmark and the United Kingdom joined the EU in 1973, while Sweden entered in 1995.
Denmark is expected to hold another referendum to vote on joining the euro area sometime in the next few years. The last referendum held in Denmark and rejected by voters 53.1 percent to 46.9 percent was in 2000. The decision to replace the krone with the euro is mostly symbolic as Denmark ties its monetary policy already with that of the ECB.
Although a referendum held in 2003 resulted in 56.1 percent of voters rejecting the euro, results in the Stockholm area showed that 54.7 percent were in favor. Despite the rejection of the euro, many businesses in Sweden accept the euro as legal tender. However, the government currently has no plans to call a new referendum.
With much controversy and debate in the United Kingdom; focusing on the potential loss of national identity and on the control of monetary policy, the government is not yet prepared to set a date for a referendum.
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