I mean, how did they decide how much a Coke was in Euros, and apply this uniformily across Europe?
I just saw an article that said the dollar has reached an all time low against the Euro…just sparked my interest.
They pegged it to the dollar. Thus, to begin with, $1=1euro
got in a hurry there, should have been: 1.17euro=$1 to begin with.
They just used the value of the former ECU (European Count Unit) which was used for instance for loans and existed since the 70s. The ECU was based on a basket of european currencies, so its value on the market was something like X% of a german deutchmark + Y% of a french franc + Z% of a british pound + etc…
At the beginning of 1999 (IIRC) the value of all the currencies in the Euro zone was fixed at their current level against the Euro (for instance, an Euro was worth 6,55XYZW francs) From this moment on, only the Euro was quoted on the currency market. The former national currencies, though still in use, were actually mere subdivisions of the Euro, in the same way a cent is a subdivision of a dollar. When the Euro, gained/lost value against other currencie, the franc, deutchmark, etc…just gained/lost value accordingly. Despite people still using francs bills and coins, and not noticing any difference in their everyday life, the real currency was already the Euro.
At the beginning of 2001, the former european coins, bills, etc, were replaced by Euro bills and coins. With the exchange rate fixed two years before (6,55WXYZ francs = 1 Euro, etc…). The previous bills and coins could still be used during a short period (a couple months in most countries), so during some weeks one could pay either in francs or in Euros. Practically, the former currencies dissapeared very quickly (Personnally, I only had some change left on January 2, and spent my last francs a couple week later)
As for the price of a coke, that’s quite easy. Let’s assume a coke was worth 10 francs in France, and an ECU/Euro was worth 5 francs (not real values, just examples). The price of a coke became 2 Euros instead of 10 francs on January 1st (though of course, a shop owner could change his prices just at this moment, and decide to sell a coke for 2.20 Euros, for instance, hoping that peole, not being used to the new currency, wouldn’t do the maths and wouldn’t notice the price change)
Now, the next question is of course : “How did they come up with the original value of the ECU in the 70s?” . For instance , they could have decided that instead of being worth X% of a deutchmark+ Y% of a franc + Z% of a pound… , an ECU would be worth 2X% of a deutchmark + 2Y% of a franc + 2Z% of a pound… hence an ECU would have been worth twice as much (in dollars, for instance). Or it could have been worth 100 times less (0.01 X% of a deutchmark + 0.01 Y% of a franc + 0.01 Z% of a pound…). Any choice could have been arbitrary made. And I don’t know how they came up with this value. I don’t know, actually, what was the original value of an ECU (in dollars, or in any other currency). I somehow suspect it was chosen in order to be roughly similar to a dollar, but it’s only a wild guess.
Less cynically, a shop owner might also change his prices such that the new price is a nice round number (by rounding to the nearest Euro, or to the nearest ten cent, or whatever). This doesn’t come up in your example, because you set a simple ratio of 5:1, but the real ratio was more likely to be something ugly like 5.37924:1 (also a fictitious number), which would make all of the previous nice round prices unround.
I think clairobscur has the official correct explanation but the process left a lot of flexibility. Essentially, once it was decided to use a “cents” type system, the Euro needed to be correctly sized to allow accurate pricing in cents.
In reality, IIRC there was a strong push to have a Euro which was similar to the dollar but “worth more”.
It was indeed set equal to 1 dollar and the weights of the currencies were determined by average GDP over the preceding 5 years.
It’s an interesting side note, I think, that according to the Big Mac Index (very relevant to the OP, asking about the price of a Coke), the Euro is approximately 10% overvalued against the US dollar.
In other words, the cost of all those things you’re concerned about, like your Coke, are about 10% higher than the exchange rates suggest that they would be. Again, this suggests (but does not prove) that one of the two will change - the cost of those items should increase relative to the cost in USD, or the exchange rate should shift favorably toward the USD.
All of this is relative, of course, and the most recent data that I’ve found dates way back to April 2003.
Excuse me, I misspoke. I meant that the cost of those items should decrease, relative to their current price.
And more cynically, a shop owner might just change the currency symbol from DM to EUR, and effectively double the price.
You’ll hear a lot of protest that this didn’t happen, but it DID, at least here in Germany.
The places with high exchange rates couldn’t do it, but the rate here in Germany was 1.9somethingorother DM to Euro. You used to see "1DM " shops - those are now “1EUR” shops. On occassion you’ll still find older articles with the DM sticker still under the EUR sticker - and in some cases, the number is the same. I don’t buy from anyone I catch at this, nor if I know for a fact that the current price in EUR is the same number that I used to pay in DM.
Given that prices do rise, eventually the EUR price and the old DM will match so that it will become irrelevant. It is still irritating to buy something that has jumped 100% in price in just a couple of years - because of a shopkeeper’s greediness.
[QUOTE]
*Originally posted by KenGr *
**I think clairobscur has the official correct explanation but the process left a lot of flexibility. **
Nope. They actually just used the current value of the ECU.
That’s the other way around. Since the value of the Euro was relatively high, subdivisions (cents) were needed. If the Euro had been worth roughly a Yen instead of roughly a dollar, there would be no cents. And there was cents for the french franc, though it was worth much less than a dollar. Only 1 cent coins didn’t exist.
What kind of push? From whom? It’s just meaningless to have an euro “worth more” than a dollar. What matters is whether the currency is a strong/stable one or not. The Euro could be worth 1/100th of a dollar and still be a strong currency. It could be worth 10 dollars and still be a weak currency. I don’t remember any debate about the value of the Euro. It was a given frm the beginning that it would be worth exactly an ECU at the current market price.
Thanks. I’ve been wondering about that for quite a long time, but was too lazy to search for accurate infos on this issue.