Euro zone prepares for day when single currency will become a physical reality

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Series Details Vol 6, No.1, 6.1.00, p12
Publication Date 06/01/2000
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Date: 06/01/2000

The lack of euro notes and coins means the single currency remains a nebulous concept for most ordinary citizens, a year after it was launched. But preparations are gathering pace for the historic changeover to the new cash which will begin on 1 January 2002. Tim Jones reports

THE euro had a bad 1999 in terms of propaganda. Even European Central Bank President Wim Duisenberg, who does not need to care about such things, admits that much.

The grizzled Dutch banker has been content to let the nascent currency lose 15% of its nominal value against the dollar over the past 12 months because this eased monetary conditions at a time of slow growth and did not threaten inflation.

But he confesses that his office has been deluged with countless letters, largely from Germans who feel they have been cheated out of their heavyweight deutschemark in favour of a weakling euro which allows itself to be battered around the ring by market speculators - and this before the currency has even started rustling in people's pockets or tumbling out of one-armed bandits.

Until now, the euro has been a nebulous concept; a virtual currency.

Smaller companies have continued to invoice in marks, francs and lire while only some of the big multinationals have overhauled their practices, and demanded and made payments in euro to simplify their record-keeping. Banks have offered euro cheque-books, which can be used with both national currency and euro accounts and bank cards have allowed transactions in both currencies. But of the physical euro, there is no sign.

All that will change two years from now, when more than 200 million people will head for their banks to hand over stashes of 'heritage currency' in return for new euro banknotes and coins. This will take place, assuming Greece joins the euro zone next January as expected, in 12 EU countries.

Originally, the plan was to allow national currencies and the euro to circulate together between January and July 2002 but, following an agreement struck between finance ministers in the autumn, countries will be allowed to curtail this dual-circulation period. As a result, national cash will be withdrawn over as little as two weeks in some states and, for ten years after that, people will only be able to swop their old notes for euro at the central bank.

Work has been under way since May 1998 to mint 56 billion coins and, from this summer to print 13 billion notes. The notes will be issued in seven denominations - €5, €10, €20, €50, €100, €200, €500 - and they will be identical in every country, bearing the now infamous collection of drawings of unidentifiable bridges and windows.

Notes have been produced since the summer by printing works in Ireland, the Netherlands, Belgium, France, Portugal, Spain, Italy, Germany and Austria.

Only 9 billion notes are needed to replace existing currency in circulation and the rest are earmarked for the European System of Central Bank's 'rainy day' stocks. The notes are being delivered in batches to each central bank's chief cashier and stored. "They are, how can I put it, very secure," said one central bank officer.

When the heritage notes come in to the central bank, they will be shredded and the strips burned. Already, note collectors' web-sites are buzzing at the prospect. Only a few will be kept for the museums, so those who do hang on to some of their soon-to-be-worthless notes could cash in later on .

In true EU style, each national print-works has been assigned a slice of the business according to country size. Germany is pumping out 4 billion notes, France 2.6 billion, Spain and Italy 1.9 billion apiece, the Netherlands 600 million and Belgium 530 million. Even Luxembourg has got a contract, with 45 million notes to its name.

"Obviously, this is a huge demand for the print factories but it is wrong to think that we will produce our quota and then stop," says one national production chief. "The average lifespan of a banknote is two or three years and there is an ongoing programme of replacement, so we will produce enough in time for the deadline but production will never stop."

The central banks claim that these notes are the most sophisticated in terms of security features that most of them have ever produced. This will come as a relief to the ECB after the embarrassment caused in 1998 when a secret hologram was mislaid on its way to a high-security printer near Nuremberg in Germany.

Coins are being minted in eight denominations - €1, €2 and 1, 2, 5, 10, 20, 50 cents. Unlike the notes, room has been left on them for national symbols.

One side is reserved for each country to use as it pleases - allowing the Italians, for example, to stamp Botticelli's Venus on the 10-cent coin and Dante on the €2 - but all the coins will be legal tender throughout the zone. Belgians can expect to buy apples with Leonardo da Vinci's Vitruvian Man and Finns their Big Macs with a €2 coin stamped with RF (Republique Française).

While giving the coin designers the chance to display a little creativity, the EU authorities set strict parameters for production in terms of weight, diameter and alloy content to ensure that the coins will work in vending machines throughout the euro zone. And according to the mints, the unique metal content of the coins, particularly the €1 and €2 pieces, makes them hard to counterfeit.

The close contacts between the minters and the owners and operators of the EU's 10 million vending machines, which led to the coin being redesigned in 1998, are continuing.

The European Vending Association had urged as long a transition period as possible to prepare coin-operated machines - everything from parking meters to pay phones and cigarette dispensers - for the new pieces.

That battle has been lost, but test centres in Finland, France, Germany, the Netherlands and Spain have been set up where manufacturers of vending machines and 'coin validators' can adjust their mechanisms using money which has actually come out of the euro-zone mints.

ECB staff reporting to executive board member Eugenio Domingo have produced detailed forecasts of public demand for cash to calculate how many notes and coins will have to be produced. This includes estimated demand for particular denominations -guesswork based on past behaviour as to whether, for example, the €50 note will outstrip the €20 in the popularity stakes.

With the growing use of credit and debit cards, low-value electronic purses and shopping on the Internet, some commentators have suggested that developing economies are entering a cashless world. But central bank officials disagree.

"You would think that on the face of it," said one. "However, the figures do not bear this out. Paper cash is still a very popular form of money. For one thing, several member states have large black economies and cash is obviously king there."

In the front line when it comes to handling cash transactions and mopping up the old money will be Europe's high-volume retailers, who have expressed concern that the dual-circulation period will coincide with the January sales, when business is traditionally brisk. Cash tills will have to be able to handle two currencies and retailers are already warning productivity losses are inevitable over the shorter transition period.

The logistics will be awesome but this, as Duisenberg has acknowledged, is the least of the ECB's worries. He will have his fingers crossed that, by the time January 2002 arrives, his postbag will be full of complaints from German, French and Italian industrialists that the euro is too strong.

Major feature. The lack of euro notes and coins means the single currency remains a nebulous concept for most ordinary citizens, a year after it was launched. But preparations are gathering pace for the historic changeover to the new cash which will begin on 1 January 2002.

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