Look at the money in your pocket. What is it worth? It all depends what you mean. A pound coin will buy you a pound’s worth of goods and services, and our smallest banknote has five times the value of a single pound. But as a piece of paper, or a lump of nickel and brass, it’s worth a tiny amount. So how does money work and why would you be fabulously rich if you had a million banknotes?

The answer is that we in the United Kingdom trust our money system. It’s convenient and, quite simply, it works because we all want it to work. That trust can fail, though. In countries which have run into severe economic difficulty, and hyper-inflation, trust in paper money and coins has sometimes broken down (as it did in Germany in the 1920s). When this happens, people sometimes devise their own tokens for exchanging goods - cigarettes, for example - which are convenient to handle and well understood by everyone.

In earlier times, other tokens of wealth have been used. The people of the Pacific island of Yap used smooth flat stones for money until only a couple of decades ago. The ancient Greeks used iron nails, and cowrie shells were used for centuries across large parts of Asia and Africa. In Fiji, whales’ teeth were used as money.

A gold coin is different from other forms of currency in that - in principle - if you melt it down, the lump of gold is still worth as much as the coin itself. For centuries, gold and silver coins were considered the most trustworthy, and formed an important part of the money system in our own country among many others. Golden sovereigns - one pound coins - were in common use in Britain until the First World War, when they were gradually replaced. Now they only appear as special issues - a gold Britannia was issued in 1987.

Often the tokens themselves acquired a greater significance than mere monetary worth. “Wampum” - the sea-shells used by many Native American tribes - was a kind of money, but it meant much more to the people than just as a basis for ceremonial gift-giving. Beautiful belts of wampum, for example, are in existence and still have great historical and emotional meaning for the Native American community.

In a way our own ceremonial coins - Maundy Money (which the Queen presents as a token charitable gift on Maundy Thursday each year and which is still made from silver), and commemorative crowns and gold coins - remind us that our trust in our coinage can become linked to other forms of tradition and belief.

All change for the Euro Express

The rich and powerful are always in the headlines, but money itself is in the news thanks to the introduction of the euro. It is not the first time money has dominated the headlines. In 1931, for example, Britain abandoned the gold standard (under which coins and notes were valued against, and could be exchanged for, gold) and in 1971 the UK adopted a decimal currency.

The euro story, though, is probably bigger than either of those, although it still has not had much visible effect on ordinary people, even in mainland Europe.

Most of us know in principle what the euro is. The underlying idea is that as European countries work more closely together, easing trade between them and presenting a more united front to the world beyond, it makes sense for them all to use the same currency. The existence of different currencies - the lire, the franc, the Deutschmark and so on - means that all trade between countries involves the changing of one currency for another. This is frustrating for ordinary travellers, but is more so for large businesses and financial institutions working across several national boundaries.

There are, however, some obvious problems involved in going for a common currency. One is that each country runs its economy in its own way, and although there may be broad economic trends across the whole of Europe, it is still true to say that one country can be doing better or worse than another at any one time. The value of a country’s currency is affected by how well it is doing, and so the establishment of a common currency is bound to be a difficult and lengthy process. This is why each country wanting to join the Economic Monetary Union (EMU) and use the euro has had to demonstrate a strong economy and a stable currency. The euro has to be a strong currency itself - measured against other international currencies such as the American dollar - if Europe is not to be at a disadvantage in the world.

Another problem is that many people across Europe, although they agree on the principle of greater co-operation, do not want Europe to become, in effect, a single country - a sort of “United States of Europe”. These people feel that to adopt a single currency is to make a move towards that. Whether the euro actually is a step towards a federal Europe is a matter for debate, and very opposing views are held by respected economists and politicians.

There is also, in some countries, an emotional attachment to the traditional currency. This is probably stronger in the United Kingdom than in some other countries, because Britain itself - with its currency - has existed as a nation for much longer than some of its mainland neighbours. For good or ill, however, on January 1, 1999, 11 European countries entered into membership of the EMU and began to trade using the euro (the name was chosen at the Madrid European Summit of 1995).

Heads and tails

The British Government has decided that Britain will not - for the time being at least - join the EMU. Whether we eventually do or not is a political decision, to be made by the government and the people of the country in a promised referendum.

It would be a mistake to think that Britain is not affected by the euro, though. Many businesses in Britain trade with European countries, and many are actually part of larger firms with branches in Europe. In fact, because London is a major international financial centre, preparation for the euro was a bigger job for the City of London than it was in many of the participating countries. Around 30,000 staff in the City of London worked on the introduction of the euro into the UK’s overall financial market duringthe “conversion weekend” of January 1, 1999.

So far, the euro exists only in money used for trading, account books and statements. No euro notes and coins are in circulation, and so even in the EMU countries nobody is yet going shopping with a purse full of euro cash. This will come, though. On January 1, 2002, euro money will come into circulation. It will become the only legal tender used in the participating countries from July 1, 2002.

There will be seven euro notes and eight coins. The notes will be of five, ten, twenty, fifty, one hundred, two hundred and five hundred euro. There will be six coins worth less than one euro - the one, two, five, ten, twenty and fifty “eurocent” coins. In addition, there will be coins of one and two euros. The coins will have a national emblem on one side, but they will be legal in any country in the EMU, and so they will begin to be mixed up. It may be that people will watch out for the euro coins of different countries in their change, and perhaps begin to try to collect a full set.

THE EURO AND THE NUMERACY HOUR

Build the euro into mental arithmetic - here are some examples.

* The symbol for the euro is e. The current exchange rate is e1.40 to the pound. How many euros will you get for pound;5? If I go abroad to work and earn e4,200, how much is that worth in pounds?

* The US dollar exchange rate is $1.60 to the pound, so each of these equals pound;1: e1.40, $1.60. If I want to buy a pair of trainers, I could buy them for pound;99 in London, for $100 in New York and for e120 in Amsterdam. Which is the cheapest place to buy the trainers?

* List these amounts of money from greatest to least in pounds equivalent: pound;200; e270; $300.

* If you go abroad in 2002, how good will you be at handling the notes? Using euro notes, how quickly can you find four ways to make e105 using only two different kinds of note? (one e100 note and one e5; two e50 notes and a e5; nineteen e5s and a e10; one e50 and eleven e5s; five e20s and a e5; seventeen e5s and a e20).

* Dutch striker Denis Bergkamp and French mid-fielder Patrick Vieira, two European stars who helped Arsenal gain the English football championship, want to be paid in euros. If they earn e20,000 a week, how much would this be in pounds?