Monday, March 27

The euro celebrates 20 years in circulation with an eye on the new digital era – – Financial News from Panama

The euro is preparing to meet its second decade in circulation on January 2 pending a facelift with the redesign of banknotes scheduled for 2024 by the European Central Bank (ECB) and without losing sight of a new digital era, for which the issuing institute hopes to have a first prototype of the digital euro ready in 2023, as well as the expected adoption of the currency by new EU countries, the first of the which could be Bulgaria in two years.

Despite the ups and downs experienced in its first twenty years in the pockets of the citizens, the euro has established itself as the second most used currency in the world, although at a considerable distance from the dollar, which maintains its hegemony as a currency without question. global reserve, except in the emerging segment of green bond issuance, where euro-denominated issues lead the market.

Reflecting the confidence of the markets, the price of the euro in relation to the dollar, which remains slightly above 1.13%, has experienced a revaluation of close to 27% since its launch, despite the fact that so far of 2021 accumulates a depreciation close to 6% with respect to the ‘greenback’ in the face of the opposite positions of the ECB, which has pledged not to raise rates in 2022, and of the US Federal Reserve, that could raise them up to three times in the coming year.

On January 2, 2002, the euro entered circulation at a price of $ 0.8892, three years after its launch in January 1999 as a virtual currency, reaching a maximum of $ 0.9066 that day and closing the session at $ 0.932, with an intraday appreciation of 4.8%.

In fact, since it was put into circulation, the price of the euro in the foreign exchange markets undertook a marked upward trend that, after the initial hesitations that brought its price to a minimum of $ 0.856 on February 1, 2002, allowed the European currency reaching and exceeding parity with respect to the dollar on July 15 of that same year.

Specifically, the euro and the greenback reached parity at 1:15 p.m. on July 15, 2002, after having started the session that day at $ 0.9941, to finally culminate that same day at $ 1.0025 its first close above of ‘green ticket‘.

Thus, the progressive strengthening of the European currency against the United States marked a new milestone on another July 15, although this time in 2008, in the midst of the financial crisis and just a couple of months before the collapse of Lehman Brothers, when it set its highest intraday change against the ‘green ticket‘upon reaching $ 1,6038, a revaluation of 80.4 percent since it was put into circulation.

In this sense, in parallel with the contagion of financial difficulties in the ‘subprime’ mortgage market of EE.UU. to the entire financial system of that country and to the rest of the world, the euro was gradually losing strength and on September 15, 2008, the date of the bankruptcy of Lehman, it closed at $1,4264.

The weakening of European economies in the years after the Great recession, including the threat of ‘Grexit‘during the eurozone sovereign debt crisis, and the introduction of quantitative easing policies by the ECB, then led by Mario Draghi, coupled with the ultimate impact of the Covid-19 pandemic over almost the past two years, they have gradually eroded the price of the euro, which is currently just above $ 1.13, 29% below the best cross against the euro. ‘green ticket‘in the summer of 2008.

Digital euro and new banknotes

In the coming years, the euro will undergo a ‘facelift’ with the redesign of the banknotes that the ECB plans to carry out by 2024 with the collaboration of European citizens.

This process of redesigning euro banknotes will be one of the biggest changes to eurozone money since the ECB decided to end the issuance of banknotes. 500 euros as of 2018.

Beyond this update of the design of the euros, the ECB has started a much more ambitious process with a view to launching a digital euro in the coming years and for which the institution wants to have a first prototype ready in 2023.

“We hope to reduce design-related decisions in early 2023 and develop a prototype in the following months,” announced the Italian ECB executive, Fabio Panetta, last November, underlining that the digital euro will serve to reinforce European sovereignty in the face of the growing importance of non-European payment systems and means.

Billions lost in old national currencies

Despite the success of the euro in its first two decades of life, the citizens of the 19 eurozone countries still keep billions of euros in their pockets or under their mattresses in coins and banknotes of their respective pre-euro currencies, including 1,575 million euros in the old Spanish pesetas.

However, it is the Germans who are most attached to their old framework, of which they still have 12,350 million euros in coins and banknotes unchanged, perhaps because the Bundesbank keeps the exchange window open indefinitely, as is the case with the central banks of Austria, Luxembourg, Belgium in the case of banknotes or the Netherlands for some denominations.

On your side, in countries like France francs for an amount equivalent to about 726 million euros remained unchanged, after February 2012 they will no longer be exchanged, while in Italy the process was closed in 2019 and in Portugal Shield coins have ceased to be exchanged and banknotes will no longer be exchanged in February 2022.

In the case of Greece, where the exchange period for drachma notes ended in March 2012 (in 2004 for coins), it is estimated that some 478 million euros in drachmas, Meanwhile in Cyprus and Malta, countries that joined the euro zone in 2008, citizens cannot exchange their previous currency since 2017 and 2018, respectively.

In Slovakia, the country that adopted the euro in 2009, citizens can still exchange their old crowns for the common currency for an indefinite period, while in Estonia, incorporated into the eurozone in 2011, the central bank has not set a deadline, the same as in the case of Latvia, in the euro since 2014, as well as in the Lithuania, last country to join the euro zone (2015).

From the European Central Bank (BCE), the vice president of the institution, Luis de Guindos, has expressed its confidence that in the future all the countries of the European Union, with the exception of Denmark and from United Kingdom, end up adopting the euro, pointing out that the incorporation of new members to the eurozone “is a matter of time”.

In this sense, Bulgaria appears as the main candidate for the expansion of the euro club, since it hopes to adopt the common European currency from January 2024, thus increasing the members of the euro zone to 20 countries.