He said on the first day of trading in the euro that it was in Britain's national interest that it should be a success, as it offered clear economic benefits to Europe.

But Mr Blair reiterated that it would not have been right for Britain to join the first wave as the UK economic cycle was still out of step with the continent.

Eddie George on the Bank of England's response to the launch of the euro

He added: "Let's be clear: in or out, we are all affected by the euro. As Europe's financial centre, London will have a key role to play in the euro's development.

"The euro's interest rate will be set in Frankfurt. But when it comes to setting the exchange rate, London is the place that counts.

"If the euro works and the economic benefits are clear and unambiguous, we would recommend entry with the British people having the final say in a referendum."

Bank of England cites influence

Meanwhile Bank of England governor Eddie George said that British interest rate policy will be influenced by the strength or weakness of the euro.

Bank of England governor Eddie George

However Mr George said the criteria by which the Bank's Monetary Policy Committee set rates would not change, and pointed out that decisions were already influenced by what happened in Europe and America.

"Certainly we will be influenced by what happens to the euro but I don't think it is a dramatic change from black to white," he told BBC Radio 4's Today programme.

BBC Correspondent Peter Morgan: Euro may come to compete with the dollar

Inflation would continue to be the key criterion as the Government had set it a target of 2.5%. But he said the Government's economic policy, particularly as it related to giving the Bank the power to set interest rates, meant joining the euro should be an option in the future.

Interest rates down?

On interest rates and convergence, Mr George said: "If we are in a situation which is likely to deliver continued low inflation, then yes indeed interest rates can come down."

The bank's Monetary Policy Committee is scheduled to meet on Wednesday and Thursday to decide whether to change its minimum lending rate from the current 6.25%.

Euro trading hits London

Meanwhile the City of London, the world's largest financial centre, threw itself into trading of the new single European currency.

Ian Peters: we are dealing with euros from day one

The first day's trading ended with business going much more smoothly than hoped.

Although Britain it is not participating in the euro, which replaces the currencies of 11 of the 15 European Union countries, London's markets are very much involved.

A third of the world's foreign exchange deals are made in London, six times more than in Germany's financial capital, Frankfurt. London is also home base to 500 international banks.

The euro is expected to gain in strength against the dollar and the pound

There had been fears that British banks would be unable to cope with the sheer volume of work involved in converting many of its assets into the new currency, but in the event many institutions seemed to take the changeover in their stride.

Much attention was paid to the price of the euro against the pound.

Sterling seemed to fluctuate considerably early on before setling down to an exchange rate of around 71p to the euro.