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European Currency Unit (ECU)

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Last Updated on: 2nd February 2021, 02:54 pm

The European Currency Unit (ECU) was an artificial “basket” currency that was used by the member states of the European Union (EU) as their internal accounting unit.

The “basket” currency was weighted according to each country’s share of EU output.

The currencies were the Belgian franc, the German mark, the Danish krone, the Spanish peseta, the French franc, the British Pound, the Greek drachma, the Irish pound, the Italian lira, the Luxembourgish franc, the Dutch guilder, and the Portuguese escudo.

The term écu is considered a word and in French is the name of ancient French coin. The ISO-4217 symbol for the ECU was “XEU”.

The ECU was conceived on March 13, 1979, by the European Economic Community (EEC), the predecessor of the European Union, as a unit of account for the currency area called the European Monetary System (EMS).

The ECU was created by the EEC with the aim of eventually making it the single currency of a unified western European economy. The value of the ECU was used to determine the exchange rates and reserves among the members of the EMS, but it was always an accounting unit rather than a real currency.

While it wasn’t used in normal everyday transactions, it was increasingly used in commercial banking transactions. Its relative stability made it more suitable than a national currency for fixing contractual terms.

By the early 1990s, it was especially important in the international bond market, where it had become the second most widely used currency (after the U.S. dollar).

The ECU was the precursor of the new single European Union currency, the euro, which was introduced on January 1, 1999

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