FINANCE AND ECONOMICS The euro Coining it MUCH of Europe seems to be moving inexorably towards a single currency. Exactly how to get there has proved a touchy issue. But if questions about how to move from old monies to a new one are tough for politicians, they are positively daunting for banks and retailers. Problems have already begun to appear. The start of the new currency, the euro, is set for January 1st 1999. At this point, all parts of the financial system apart from the physical currency will begin to be converted to euros. Only three years later will Europe’s 13 billion notes and 76 billion coins be replaced by euro-money. This will be by far the biggest currency exchange ever undertaken. It promises to be costly. Consider, for example, simply getting the currency into circulation. Shipping it, storing it and exchanging it will be a mind-boggling task. The efficient Dutch have already calculated that the distribution of 1.5 billion new euro coins in the Netherlands will require 250 one-tonne trucks, making 8,000 journeys, and 15 times the present secure storage space. Once at the bank, the new money has to be swapped for old. Cash machines are not set up to do this, so all of Western Europe will have to join the queues at teller windows. Germany’s Deutsche Bank calculates that it would take 2,000 cashier-months to exchange its private customers’ cash holdings—assuming that each customer comes only once. So far, it looks as though the banking industry will have to foot the bill for all this. Whereas banks are likely to be the public’s main source of new notes, shopkeepers will be the main distributors of coins, in the form of change. But for them, January 1st is purgatory. Winter sales are in full swing, the shops are full of temporary staff, and customers, nursing a Christmas hangover, are impatient. Many retailers therefore want E-day to be in either October 2001 or February 2002. In February, sales are typically only 60% of early January’s level, so it will be easier to deal with two different types of money in the till. Retailers will put their case at a European Commission hearing on September 22nd. But moving E-day might create new problems. For example, the deadline for changing bank balances into euros is currently the end of December 2001. Would there be problems if, say, the October date meant that shoppers could still have bank accounts in francs and marks while shopkeepers were giving them euros? The Commission is still unsure of the answer. Under present plans, old and new currencies are to circulate side by side for six months. Many retailers argue that such a long period would aggravate confusion and raise costs hugely, especially if they are legally required always to use two prices, as some consumer groups want. At worst, says EuroCommerce, a Belgian consultancy, the cost of the switch could be 1.8% of EU retail turnover—almost double a year’s profits. Retailers want to speed things up by being allowed to give change in euros only, even if a shopper has paid with national currency. That would initially mean carrying a huge float of change—ten times the usual, reckons one British retailer—but would get national currencies out of circulation more quickly. The vending-machine industry, however, wants a slower transition. Its trade association calculates that more than 90% of Europe’s 3.2m machines are coin-operated, and that it will take at least an hour to adapt each for the new coins. The costs of the change rise steeply the shorter the time allowed. The nearest thing to a dry run for E-day was the 1971 decimalisation of the British and Irish currencies. That required changing only three denominations of coins, and no notes. It took place in mid-February, involved an overnight transition from old currency to new, and required the help of the army to shift money quickly and safely. It was, say long-time retailers, the worst day of their lives. For their continental counterparts, a worse one lies ahead.  © Copyright 1997 The Economist Newspaper Limited. All Rights Reserved