The ECU-European Currency: Definition
The European Currency Unit (ECU) was the currency unit used by the European Economic Community (EEC). It replaced the European Unit of Account (EUA) on March 13th, 1979, and lasted until its replacement by the Euro on January 1st, 1999.
The European Monetary System (EMS), an adjustable exchange rate arrangement, established the ECU. The EEC and the EMS were crucial in forming the European Economic and Monetary Union (EMU) and the European Community (EC), which led to the creation of the Euro.
The Composition of the ECU
The ECU was a unit of account and not a circulating currency. Therefore, all EEC members had national currencies, while the ECU was an accounting currency used for select international transactions and capital transfers.
The European Exchange Rate Mechanism (ERM) aimed to lower exchange rate variability to achieve monetary stability in Europe. It used a “snake in the tunnel” approach to manage the variance of each national currency against its ECU reference rate. This allowed it to achieve fixed ratios over time and enable the creation of the Euro.
A composition of eight national currencies formed the ECU-European Currency Unit, which expanded to twelve before its replacement by the Euro in 1999.
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ECU Composition and Weight 1979 to 1984
National Currency | Currency Units per ECU | Weight |
|---|---|---|
Belgian Franc | 3.80 | 9.64% |
German Mark | 0.828 | 32.98% |
Danish Krone | 0.217 | 3.06% |
French Franc | 1.15 | 19.83% |
British Pound | 0.0885 | 13.34% |
Irish Pound | 0.00759 | 1.15% |
Italian Lira | 109 | 9.49% |
Dutch Guilder | 0.286 | 10.51% |
ECU Composition and Weight 1984 to 1989
National Currency | Currency Units per ECU | Weight |
|---|---|---|
Belgian Franc | 3.85 | 8.57% |
German Mark | 0.719 | 32.08% |
Danish Krone | 0.219 | 2.69% |
French Franc | 1.31 | 19.06% |
British Pound | 0.0878 | 14.98% |
Irish Pound | 0.00871 | 1.20% |
Italian Lira | 140 | 9.98% |
Dutch Guilder | 0.256 | 10.13% |
ECU Composition and Weight 1989 to 1998
National Currency | Currency Units per ECU | Weight |
|---|---|---|
Belgian Franc | 3.301 | 8.183% |
German Mark | 0.6242 | 31.915% |
Danish Krone | 0.1976 | 2.653% |
French Franc | 1.332 | 20.306% |
British Pound | 0.08784 | 12.452% |
Irish Pound | 0.008552 | 1.086% |
Italian Lira | 151.8 | 7.84% |
Dutch Guilder | 0.2198 | 9.87% |
Luxembourg Franc | 0.13 | 0.322% |
Spanish Peseta | 6.885 | 4.138% |
Greek Drachma | 1.44 | 0.437% |
Portuguese Escudo | 1.393 | 0.695% |
From the EUA to the ECU to the Euro
The European Payments Union (EPU), established in 1950, used the European Unit of Account (EUA) as an internal unit of account. One EUA equaled 0.888671 grams of gold or one US Dollar. After the Bretton Woods system collapsed in the early 70’s, one EUA was a European currency basket. The Kredietbank Luxembourgeoise was the first financial institution to use the EUA outside the EPU by issuing an EUA-denominated bond. The EUA existed between 1975 and 1979 before being replaced by the ECU 1:1.
The ECU was the next step to create a currency within the European Union, but it was a unit of account and not a circulating currency. It was a necessary step for the creation of the Euro and existed between 1979 and 1998 when the Euro replaced the ECU 1:1 in 1999.
The Euro is now the official currency of 20 out of 27 EU member states, which form the Eurozone. It is the second-most traded currency globally, ranks as the second global reserve currency, and 200+ million citizens outside the Eurozone use a currency pegged to the Euro.
ECU Conclusion
The ECU was a unit of account that led to the creation of the Euro. When introduced, it was a monetary experiment that replaced 20 national currencies.
FAQs
What is the ECU currency in France?
The ECU was the same across the European Economic Community (EEC) and was a unit of account rather than a circulating currency. Therefore, it did not replace or override the national currency of member states using the ECU.
What are ECU bonds?
ECU bonds were Eurobonds denominated in ECU. They allowed the holder to receive interest rates and principal payments in ECU or any of the twelve currencies in the ECU basket.
What is the basic unit of money in Europe?
Europe is not a country but a continent comprised of 50+ countries. Therefore, there is no basic unit of money in Europe.
What is the currency unit of the European Union?
The European Union (EU) does not have a currency unit, but the Euro is the official currency of the Eurozone, which has 20 of the 27 members of the EU. While the EU strives to accomplish its goal of making the Euro the official currency for all member states, it is years away and unlikely to complete its goal, as Denmark has a legal opt-out from converting its currency system to Euros.