Part - I

Factual Background

Euro, the official currency of eleven European countries came into existence in the year 1999 although its physical circulation in the form of notes and coins did not start before the year 2002.

Member nations of the European Union like Britain did not join as they had a specific opt out right under the relevant Act. Even Denmark opted out by means of taking advantage of technicalities. But the Euro is a reality today dispelling the doubts of critics who felt that it could never succeed.

Why Euro?

The question which invariably come to mind is that why did the Euro come into existence. The Euro was the result of a convergence of varied interests of 11 European nations who felt that they would be sizeably benefited by the introduction of a single currency in Euroland. First of all the Euro has its own set of advantages. It eliminates exchange fluctuations thereby exchange risks amongst the 11 European currencies, which have now ceased to exist. It reduces the transaction costs involved in conversion of currencies or otherwise and practically brings to an end the requirements relating to hedging, which were hitherto considered by companies trading internationally in Euroland. The Euro helps individual countries in different ways. It protects Italy from being called an international pariah, the French need not be worried any longer about being overpowered by Germany, the Finnish currency is free form volatility and so on.

Besides this it also must be admitted that individual businesses will be able to save billions of dollars that they used to incur in printing separate invoices, price lists etc for a variety of products. Perhaps the biggest advantage of the Euro is that it may eventually arise as a competitor to the dollar in question of being used as a medium for store of long-term value. Globally, it is estimated that the US dollar accounts for around 85% of the total store of value in currency format. The Euro hopes to change that by emerging as the largest store of value within a very short period of time.

All this may seem to suggest that the Euro is primarily an economic decision. But the real motive may be far from economical. Historically, it has been found that economics tend to prevent political conflict and convergence of economic interests may do just that, thus preventing a repeat of the two World wars that ravaged Europe in the last century.

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* Contributed by -
Pinak Rudra Bhattacharyya,
Ist Year, IMT Knowledge Forum,
IMT Ghaziabad.