I have heard that some countries outside the European Union use the euro as their currency. How is this possible?
There are two groups of countries, that are non-EU members but that have acquired the euro as their own currency.
The first group consists of the Member States benefiting from a privileged association and having introduced the euro as their official currency by virtue of a special monetary agreement with the European Union. We are referring to micro-States enclosed within the European Union and linked, in a very direct way, to the economy of the European Union: Andorra, the Vatican, Saint-Marino and Monaco. These states do not have the right to issue banknotes but they have the right to issue a certain number of coins.
The second group consists of Member States that use the euro unilaterally such as Montenegro and Kosovo. These countries are not part of the European Union and even if they were part of the European Union, they would have to respect, primarily, the convergence criteria in order to adopt the euro.
Since none of these countries are members of the European Union (and, consequently, of the euro area), they do not participate in the definition of the monetary policy of the Eurosystem.