The euro (EUR) is the official currency of 16 of the 27 member states of the EU (European Union). It is the second largest reserve currency and the second most traded currency in the world after the US dollar. It is the youngest reserve currency of all, coming into existence only in 1999 at a rate of 1:1 replacing the old ECU (European Currency Unit), which served as a shadow currency.
The Japanese yen is the third most traded currency in the foreign exchange market after the US dollar and the euro. It is widely viewed as a reserve currency after the US dollar, euro and UK pound.
The 16 countries that have adopted the euro are: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Italy, Ireland, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain.
Imports and exports between countries in the eurozone are measured on a country-by-country basis. Trade between the member countries is not subject to exchange rate risk which helps to keep costs stable.
Using the single currency increases price transparency, eliminates currency exchange costs, oils the wheels of the European economy, facilitates international trade and gives the EU a more powerful voice in the world.
The European Central Bank (ECB) is independent of central governments and as such has a mandate to keep inflationary pressures low. It has no mandate to sustain growth or employment. These are left to the member governments. The ECB also controls monetary growth.
The central bank of Japan is the BoJ or Bank of Japan. It was founded in 1882 and has sole responsibility for controlling the money supply.
In 1997 the Bank of Japan Act set out the Bank's objectives ‘to issue banknotes and to carry out currency and monetary control’ and ‘to ensure smooth settlement of funds among banks and other financial institutions, thereby contributing to the maintenance of stability of the financial system.’
