In our economy, banks buy and sell money from each other in the money market under the supervision of the European Central Bank. These banks charge each other an interest rate for the money borrowed, depending on the term of the loan.
A panel of 26 banks provide daily quotes of the rate at which they believe a prime bank is quoting to another prime bank for interbank term deposits. The choice of banks quoting is based on market criteria (e.g. the ones with the highest volume of business in the euro zone money market) and ensures that the diversity of the euro money market is adequately reflected.
The highest and lowest quotes are eliminated, and the remainder are averaged (truncated mean) to give the relevant Euribor (Euro Interbank Offered Rate) rate, the daily reference rate of the euro money market since 1999.
Similarly, Libor or London Interbank Offered Rate, is the reference rate for other main currencies such as the British pound sterling and the US dollar since 1986.