EURC and The Three Monetary Unions?

Zodia Markets is proud to announce that it has integrated Circle’s EURC, which is now available for exchange against cryptoassets, stablecoins and fiat currencies via our OTC Brokerage and Exchange. This represents a significant step for Zodia Markets in creating a stablecoin-based foreign exchange (FX) market. With the emerging regulatory frameworks in the EU and the UK providing a clearer roadmap for the adoption and management of stablecoins, we are entering a crucial stage in creating an environment that is favourable for the advancement of stablecoin innovation.?

A History of Monetary Unions in Europe?

Both stablecoin FX and EURC represent an opportunity for national currencies to become globally accessible. The euro and its precursors were financial innovations designed to break down borders using peaceful means. Setting aside the political objectives, all shared a desire to increase cross-border exchange and, with it, prosperity. While the euro is well-understood, three of its predecessors are less well known. These are the 1865 Latin Monetary Union (LMU), the 1871 German Monetary Union (GMU), and the 1873 Scandinavian Monetary Union (SMU).??

The LMU was driven by the discovery of gold in California and Australia in the 1840-50s, which caused instability in the bimetallic silver and gold-based monetary systems of continental Europe. In parallel, European industrialisation meant that the friction caused by different monetary systems in cross border commerce was becoming an increasing problem. It was also driven by a French desire to create a counterbalance to the Miinzverein, which was a currency standard created in the 1850s by the German Zollverein states, Austria and Liechtenstein.?

The initial founders of the LMU were France, Belgium, Switzerland and Italy, with Greece joining nine years later. Ultimately, since the LMU only focused on gold and silver coinage, rather than including banknotes, the union was vulnerable to the continual fluctuations in the prices of the two metals, which in turn created arbitrage opportunities. The Union was subject to numerous reorganisations but ultimately it was a coinage union rather than a full monetary union and lacked the institutions that might have made it successful in the long-term.??

The 1871 GMU saw the adoption of a single currency across eighteen states that came together to form the German Empire. It included the adoption of the gold standard and, critically, the creation of the Reichsbank as an institution to manage the new Union. The drive to unify Germany had started many years before, whereas there was far less demand to unify the nations of the LMU. As such, the GMU followed political union, not the other way round as was the case with the LMU.?

The SMU between Denmark, Sweden and, later, Norway, was partly driven by Germany’s adoption of the gold standard in 1871. Germany’s rapid industrialisation meant that it was becoming a major trading partner for the Scandinavian countries. Also, Germany’s defeat of Denmark in a war in 1864 drove the latter to seek to join its northern neighbours rather than associate with Germany. The SMU was broadly more successful compared with the LMU as its exchange rates were harmonised, coinage was fungible as were, unofficially, banknotes. Finally, there was institutional harmonisation between the different central banks through each holding accounts with the other, allowing the pooling of reserves, as well as unified rules on clearing and settlement.??

What the three unions demonstrate is that the euro is the continuation of a long-term theme in European monetary history. The euro has successfully created a monetary union of the three regions and beyond (with exclusions, such as Switzerland). What was challenging for the three older unions was the monetary delivery mechanism and the technologies involved, namely metallic coins, paper money and primitive communications.??

In a sense, the electronic payment systems that modern fiat money sits on, such as the euro’s TARGET2 system, are more constrained in terms of geography and time than the metallic and paper money of the Three Monetary Unions. The euro system is constrained in terms of geography insofar as it is limited by the borders of the Eurozone member states. Yes, it is possible to open offshore accounts outside those states, but movements still need to be cleared onshore. It is also constrained in terms of time by the operating hours of the TARGET2 payment system. For example, it is closed on weekends.??

EURC Powering Near-Instant, 24/7 FX?

Stablecoins like EURC can be used similarly to the euro within the EU. However, the true catalyst for efficiency lies in the distributed ledgers that underpin EURC. These ledgers are not bound by geographical or temporal constraints - accessible via the open Internet and operating 24/7.?

EURC could be perceived to represent an evolutionary step towards currency unionisation, using the technology of the open Internet to further break down economic borders, with the potential to bring about greater prosperity. And consequently, EURC has the potential to enhance the international adoption of the euro as a trade currency. Zodia Markets looks forward to playing its role in that journey by combining Circle’s EURC with its other stablecoin and fiat offerings to bring the benefits of internet-based money to foreign exchange and cross-border payments.??

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