According to the Maastricht Treaty of 1992, there was a need to create a plan for a single currency secured by the EU. Therefore, in January 1st 1999, the euro came into being and exchange rates were fixed. During the next two years, the euro was used by banks in electronic form. The first notes and coins came into being in 2002, when the euro officially became a legal currency for all transactions in Europe. The only EU states that did not adapt it were Britain, Denmark and Swede (Irene, 2011).
The euro provides for common currency among all the European countries, since most small countries are involved in trade activities. In such a way, the provision of services and goods among the member states was facilitated.
Being a common currency, the euro was meant to bring in price stability, trade benefits and economic growth. Therefore, the objective of the euro was to have a liberalized capital market among the European countries (Nathan, 2011).
There has been a constant fluctuation in the exchange rate between the dollar and the euro. Currently, it has hit the mark of 1.200. According to economic analysis conducted by the University of Manchester, the fluctuation has a big impact on the international exchange of the euro and the dollar.
Markets have found it difficult to keep the euro stable and intact. The biggest problem regarding common currency, especially the euro, is debt, agreement between the EU members and EMU to increase borrowing limits. However, debt is a double edged sword.
With the advent of the common currency, it is difficult to devalue one country’s currency, and there is no protocol that has been established for the proper management of the euro (Irene, 2011).