With the start of the new year in 2002, the 12 members of the European Union launched a single currency across their borders, replacing individual country currencies and singling out the Euro as their one shared monetary denomination. Marketplace, a daily economics news program heard on National Public Radio, featured a story on January 2, 2002 about the currency change of the landmark event. (This lesson should be used as an introduction to this topic. There is another Economics Minute The Euro Makes its Debut that would be a good follow-up to this lesson.)
With the start of the new year in 2002, the 12 members of the European Union launched a single currency across their borders, replacing individual country currencies and singling out the Euro as their one shared monetary denomination. Marketplace, a daily economics news program heard on National Public Radio, featured a story on January 2, 2002 about the currency change of the landmark event. (This lesson should be used as an introduction to this topic. There is another Economics Minute—“The Euro Makes its Debut” –that would be a good follow-up to this lesson.)
Why is this change so important? How will having a single currency influence consumer behavior in the European Union? Why did the countries that declined making the change do so? In this lesson you will explore these questions to determine what you would do if you were a member of the European Union.
- Describe the advantages and disadvantages of using a single currency within a group of several countries.
- Calculate currency exchanges for the U.S. dollar against various European currencies prior to the change to the Euro as the central currency for the European Union.
- Determine how economic exchange rates can influence consumer behavior.
European Commission: The European Commission's website. This site provides more information on the Euro.
"International Bank Note Society": This site is a non-profit site for currency collectors. It has information on collecting, researching and studying various currencies from around the world. A virtual gallery provides scanned images of currencies.
"National Geographic Xpeditions Atlas map of Europe": Have students use this site to print out a map of Europe and to list the appropriate currency with each country in order to see the wide variety of currencies that used to exist.
"Marketplace radio audio transcript": Students will read this article for information about the introduction of the Euro into the European economy. Students will answer questions pertaining to the article in order to complete Activity 2.
"The Euro Makes its Debut" lesson: Use this follow up lesson to help students take a more in-depth look at fiscal policy and the economic and political issues countries had to resolve before they would be ready for the changeover.
Financial Currency Calculator: students will use the calculator to make some calculations as to what their money would have been worth in a variety of European currencies.
"European Shopping Adventure": An interactive Flash activity that helps students understand some of the economic effects of changing to a single currency.
European Shopping Adventure.
"CNN Special: Euro, Ready or Not": This special feature developed by CNN includes historical information, synopses of countries' stances toward the Euro and the European Union, images of the "new" currency, and many other features, both text and interactive.
"Washington Post Special: The Euro": Archive of Washington Post articles on the development and adoption of the Euro as the European Monetary Union's single currency.
Costs and Benefits of the Euro: An article stating the costs and benefits of the Euro students can use to answer questions in activity three.
Discuss trips you or your classmates have taken to destinations outside the United States.
- Discuss trips you or your classmates have taken to destinations outside the United States.
- Where did you go?
- What were the best parts of the trip?
- What were the challenges? [Students should be encouraged to consider challenges such as language barriers, differences in customs, time differences, and exchanges between currencies.]
- Did you go to a country where people spoke a language other than English?
- How did you manage to get the goods and services you needed?
- Did you have the opportunity to make any purchases while in the other country?
- What did you buy?
- How did you know how much you were spending?
- Did you or anyone in your class travel to more than one country on your trip?
What happened when you switched from one country to another?
(This is a cornerstone question for this lesson. Try to draw out students' experiences in changing multiple currencies. What was made easier or harder by traveling? Did they compare prices in different countries? Why or why not? If so, where did they find the "best" place to buy particular items?)
If you have not had the opportunity to travel abroad, look at the pre-Euro currencies of various countries. Take some time to explore currency sites you can find. Challenge yourself to find samples of the different types of currency found in European countries before the changeover to the Euro. You can use the National Geographic Xpeditions Atlas to print out a map of Europe and list the appropriate currency with each country. Once you have had a chance to see the wide variety of currencies, redirect the discussion to what would happen if you traveled from one country to another in Europe and needed to purchase goods or services in each different country.
Have students read the Marketplace article on the Euro to learn about the introduction of the Euro in the economies of these twelve countries:
- What difficulties did some countries experience during this transitional period?
- Why would it be difficult to switch from one currency to another?
- Would you have used the Irish method of accepting only the new currency or would you have tried to use both monetary values as happened in Germany?
[Note: For more information on the Euro use the https://ec.europa.eu/commission/index_en website.]
Visit the https://www1.oanda.com/currency/converter/ and make some calculations as to what your money would have been worth in a variety of European currencies (Deutschmarks, Lira, Francs, Dutch Guilders, etc.) prior to the adoption of the Euro. How much would $20 have been "worth" in the year 2000 in the various countries? How much is it “worth” today?
- Suppose you took a trip to Europe just before the currency switch. You plan to visit Germany, France, and Italy. You have $200 to spend on souvenirs while you are there, but you’ll have to exchange your U.S. Dollars for each country’s currency while you are traveling. Complete the following problem sets to see what you can buy, and how much money you’ll have when you return.
Have your students go through the interactive activity European Shopping Adventure.
European Shopping Adventure outline
Suppose you are taking a trip to Europe just before the currency switch. You plan to visit Germany, France, and Italy. You have $200 to spend on souvenirs while you are there, but you’ll have to exchange your U.S. Dollars for each country’s currency while you are traveling. Complete the following problem sets to see what you can buy, and how much money you’ll have when you return.
First Stop – Paris France!
In France, you exchange $100 for Francs. The exchange rate at the time is 7.51 : 1, which means for every dollar you get 7.51 Francs.
- How many Francs do you have?  Hint: Multiply the exchange rate by the total dollars you are exchanging.
Here you find the latest in French fashion. Buy a t-shirt for 97.74 Francs and a pair of French jeans for 163.33 Francs. Stop of in the candy shop on your way back to the hotel for a collector’s box of French chocolate. Pay 261.76 Francs for the chocolate.
- How much French money do you have left? [228.17 Francs] Hint: This is a multi-step subtraction problem. Start with the total Francs and subtract each purchase.
- How much is that in U.S. Dollars? [30.38 Dollars] Hint: Remember that every 7.51 Francs is equal to one U.S. dollar. Divide.
On to Germany! Let’s go to Hamburg.
In Germany, you exchange $40 for Deutschmarks – the currency of Germany. The exchange rate at the time of your trip is 2.26 Marks for every U.S. dollar.
- How many Deutschmarks do you get? [90.40 Marks] Hint: Multiply 2.26 by 40.
Your stop in Germany is only one day. You barely have time to see the sights of Hamburg, but you do find one little souvenir shop that has a great book with pictures of many other beautiful spots in Germany. The book costs 55 Marks.
- How many Marks do you have left? [35.40 Marks] Hint: Subtract 55 from 90.40)
Uh oh, the train leaves in 10 minutes. Run for it!
After a long train ride you arrive in Florence, Italy, where you will spend a few days traveling to various cities nearby. Exchange some money to get you started. You’ll exchange the last $60 of your $200 at a rate of 223.72 Lira for every dollar.
- How many Lira do you get? [13,423,32 Lira] Hint: Remember, you are only exchanging $60 here. Multiply 60 by the exchange rate.
While touring Florence, you notice that cameos are a very popular item made here. They are beautifully carved from shells. Your grandmother loves cameos, so you decide to get one for her. The cost is 223,717 Lira! Do you have enough? You certainly don’t have enough Lira, but what about all the other currencies you have left over from France and Germany? How can you figure out what you have? Are you tired yet?
Stop for a minute and talk about this with your group or class. What is likely to happen to you as a traveler at this moment? Are you likely to try to figure out what you have in your pockets, or are you likely to give up and not make the purchase? How can having a single currency help you as the consumer and the businesses you are visiting as producers? Let’s take a look at what the situation would be like if there were a single currency.
Francs, Marks, Lira… HELP!
Let’s see what would have happened if you delayed your trip until the Euro was the standard currency in all these countries…
Let’s go back to the beginning. In France, you exchanged $100 and got 751.39 Francs. What if you just exchanged all your spending money ($200) for Euros? At the time of the currency change, you would have gotten 1.12 Euros for each of your U.S. Dollars. That equates to 224 Euros. Now, let’s see how the shopping would have gone:
- In France, you bought a t-shirt, jeans, and some chocolates. That would have cost 79.70 Euros.
- In Germany, you bought a book of photographs. Euro cost = 28.12
- Now you’re in Italy, and you want to buy a cameo. Instead of needing 223,717 Lira, you would need about 115 Euros. Do you have enough? [Yes, you would spend 222.82 of your 224 Euros]
What are the advantages to having one currency. How is your behavior as a consumer likely to be affected positively by this change? [Consumers will be more comfortable in switching from one country to another, more confident about their purchases, and thus, more likely to travel throughout Europe and consume a variety of goods and services. Discuss with students that there are other advantages to this change aside from their own comfort level.]
Discuss the following questions with a group:
- What will happen to the value of your dollar if the exchange rate changes? Go back to the calculator and try some different dates for making exchanges. Start with March 1, 2002 and try some dates since then. What has happened in the time since the Euro became the central currency in Europe? [Students should note the differences in dollar value over time. When money is exchanged for a different currency, the value of the money is dependent on the rate at the time it is exchanged. If the exchange rate is higher or lower, dollars will buy “more” or “less” at those times.]
- How do you think the exchange rate might affect things like U.S. tourism in different countries? At times when the exchange rate “buys” more Euros, are people more or less likely to plan trips to Europe? What if other tourist destinations have better exchange rates? [People will be attracted to countries where the dollar buys more, and not as likely to spend money where the dollar is worth less. Likewise, in countries where the exchange rate “buys” more dollars,, people are likely to come to the U.S. to visit since their money will buy them more.]
- How does having a good exchange rate influence international trade? [Countries with better exchange rates are more likely to win trade with other countries. The better price an importer can get on a product, the more likely he or she is to import from that country].
Have students work independently or in small groups to read some of the news articles of the time that describe the transition. Specific items they should look for include the following:
What are the denominations of the new currency? (Coins: .01, .02, .05, .1, .2, .5, 1, 2 Euros; Bills: 5, 10, 20, 50, 100, 200, 500 Euros)
- What does the new currency look like?
- How is it similar to or different from the previous currencies of each participating nation? [This question suggests one of the popular arguments against switching to a single currency. Many participating nations have had the same currency for hundreds of years. Designing new coins and paper was problematic and is still a disappointment to many in the general public.]
- What issues arose during the development of the changeover plan that had to be addressed? [Countries worried about losing control of their financial situations. Instead of maintaining cash policies for each individual country, the European Monetary Union will have a central bank, thereby limiting the amount of influence individual countries can have over their own economies. Worries of this kind were fueled by a seeming instability in the value of the Euro along with worries about a shortage of hard currency as the date for the changeover approached. In the (now) follow-up lesson: The Euro Makes its Debut, students will take a more in-depth look at fiscal policy and the economic and political issues countries had to resolve before they would be ready for the changeover.]
- Which countries chose not to change over to the Euro? [Britain, Sweden, Denmark]
- Why did they choose not to make the change? [Political sentiment still was in favor of sovereignty over financial status.]
- Has this stance changed over time? [As of mid-January 2002, all three countries were leaning much more toward adopting the Euro. Answers will vary depending upon when this lesson is used.]
- What were some of the costs and benefits of the switch? Use the Costs of Change article on the CNN.com special feature to find specific examples of the ways businesses and individuals were affected by the switch. – both costs and benefits. Make notes on these so that you can participate in group discussion during the evaluation and closure activity below. [Some of the costs outlined in the article are: lost currency due to coins not currently in circulation (e.g. "piggy bank problem"), costs to banks and businesses for retrofitting machines and operations, costs to stores for handling both currencies during the transition, costs to individuals in losing their money if the old currency goes out of use before they've converted their currencies, existing currency exchange businesses due to lack of demand for making such exchanges. Benefits include higher probability of competition among countries in pricing for retail as well as trade, benefits to individuals who will no longer have to change currency and pay the related fees, and benefits to charities who may collect the old, unwanted currency to raise money for their causes.]
In this lesson you studied the changeover from multiple currencies to a single one.
- What are the advantages, from a consumer perspective, in having the single currency?
- What are you able to do more easily having only one denomination?
- Do you think this will influence people’s spending habits?
- What about trade between countries and with other countries outside the European Union?
If you have not had the opportunity to travel abroad, look at the pre-Euro currencies of various countries. Take some time to explore currency sites you can find using sites such as the https://www.theibns.org/joomla/index.php . Challenge yourself to find samples of the different types of currency found in European countries before the changeover to the Euro. you can use the National Geographic Xpeditions Atlas to print out a map of Europe and list the appropriate currency with each country. Once you have had a chance to see the wide variety of currencies, redirect the discussion to what would happen if you traveled from one country to another in Europe and needed to purchase goods or services in each different country.
Pretend that you represent one of the countries that did not change to use of the Euro in January 2002. Present an argument to the people of your country as to why you should now make the change, or why you should remain steadfast in your resolve not to join the other countries in the EMU. Include references to influences such as tourism, international trade, political sentiment, domestic financial issues, etc. [Students should present arguments that discuss more than the appearance of the coins or the ease of individual consumers to buy various goods and services. Look for evidence of student understanding in the areas of international trade and domestic finance. Possible arguments against adoption could be the loss of control over individual countries’ fiscal policy. One central bank will influence the economies of each individual country.]