General information for Euro currency
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The euro was launched on 1 January 1999, when it became the currency of more than 300 million people in Europe. For the first three years it was an invisible currency, only used for accounting purposes, e.g. in electronic payments. Euro cash was not introduced until 1 January 2002, when it replaced, at fixed conversion rates, the banknotes and coins of the national currencies like the Belgian franc and the Deutsche Mark.
Today, euro banknotes and coins are legal tender in 18 of the 28 Member States of the European Union, including the overseas departments, territories and islands which are either part of, or associated with, euro area countries. These countries form the euro area. The micro-states of Monaco, San Marino and Vatican City also use the euro, on the basis of a formal arrangement with the European Community. Andorra, Montenegro and Kosovo likewise use the euro, but without a formal arrangement.
Cash flows in euro area
Euro banknotes (and coins) circulate widely in the euro area mainly because of tourism, business travel and cross-border shopping. To a much more limited extent, national banknotes, before the introduction of the euro, also moved across borders and then had to be repatriated, mainly through the commercial banking system, to the central bank that issued them. Such returns are not necessary with the euro. However, since large quantities of euro banknotes do not remain in the country where they were issued but are taken to other euro countries, and spent there, the central banks have to redistribute them in order to avoid a banknote shortage in one country and a surplus in another. These bulk transfers are coordinated centrally and financed by the ECB.
Cash: an indispensable, cost-efficient payment instrument
Cash is just one of many forms of payment. It remains important despite the spread of cards, direct debits and other forms of cashless payment in recent decades.
The Eurosystems position vis-a-vis the different payment instruments is neutral. However, a smooth and efficient operation of payment systems requires a mix of instruments with different characteristics and merits. Cash is by far the most widely used retail payment instrument in the euro area, where some 800 billion is in circulation.
As a payment instrument, cash has some unique features:
+ it is the cheapest instrument for small retail payments the average overall cost per transaction is lower for cash than for comparable electronic payment instruments;
+ it is the most important contingency payment instrument in the current payments infrastructure;
+ it is inclusive, as it ensures that people who have no bank accounts or limited access to them or who are unable to use electronic forms of payment can still make payments;
+ it enables customers to keep a closer check on their spending;
+ it has proved to be secure in terms of fraud/counterfeiting resistance.
In April 2001 the ECBs Governing Council decided that the production of euro banknotes should be decentralised and pooled after the initial cash changeover. Therefore, since 2002 each national central bank of the euro area has been allocated a share of the total annual production of euro banknotes in respect of certain denominations. The respective bank bears the production costs for the share allocated.
In September 2002 the Governing Council decided to establish a Eurosystem Strategic Stock (ESS). This stock is intended for use in exceptional circumstances, i.e. when logistical stocks in the Eurosystem are insufficient to cover an unexpected increase in the demand for banknotes or in the event of a sudden interruption in supply.
The logistical and strategic stocks ensure that any changes in demand for banknotes can be handled at any time by the national central banks, irrespective of whether the demand comes from inside or outside the euro area. The logistical stocks meet the demand for banknotes in normal circumstances in order to
+ replace unfit (poor-quality) banknotes returning from circulation;
+ accommodate an expected increase in circulation;
+ meet seasonal fluctuations in demand;
+ optimise banknote transportation between central bank branches.
Legally, both the ECB and the central banks of the euro area countries have the right to issue euro banknotes. In practice, only the national central banks physically issue and withdraw euro banknotes (as well as coins). The ECB does not have a cash office and is not involved in any cash operations. As for euro coins, the legal issuers are the euro area countries. The European Commission coordinates all coin matters at euro area level.
The ECB is responsible for overseeing the activities of the national central banks (NCBs) and for initiating further harmonisation of cash services within the euro area, while the NCBs are responsible for the functioning of their national cash-distribution systems. The NCBs put banknotes and coins into circulation via the banking system and, to a lesser extent, via the retail trade. The ECB cannot perform these operations as it does not have its own technical departments (distribution units, banknote processing units, vaults, etc.).
The European Central Bank intends to redesign the notes every seven or eight years. A new series, called "the Europa series", is being released from 2013. The Europa series 5 Euro started circulating in the euro area on 2 May 2013. The new 10 euro started circulating on 23 September 2014. The next Europa series 20 Euro banknote started circulating on 25 November 2015. The new series include slight changes, notably the inclusion of the face of the mythological princess Europa in the watermark and in the hologram stripe. New production and anti-counterfeiting techniques are employed on the new notes, but the design shares the colours of the current series and the theme of bridges and arches.
The new notes also reflect the expansion of the European Union, every member of the EU is depicted on it. The initial series do not include the recent members Cyprus and Malta (Cyprus was off the map to the east and Malta was too small to be depicted. It will be the first time when the Bulgarian Cyrillic alphabet is to feature on the banknotes as a result of Bulgaria joining the European Union in 2007.
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Source: European Central Bank