Despite the barrage of information about the big currency switchover, millions are still in the dark

Date: 11/01/01

In less than a year, 56 billion euro coins and 13 billion euro banknotes will hit the streets. But as E-Day approaches, many businesses have still not started preparing for the single currency. Tim Jones reports

MANY reasons have been found for the euro's seemingly inexorable plunge over the past two years.

Despite the recent rally, the graph line which took the proud new currency from 1.18 US dollars at launch in January 1999 to 85 cents and below in early autumn 2000 has been punctuated by evidence of an endless US growth spurt, worries about euro-zone coordination and even a war in Kosovo.

But, during the worst moments when the zone's policy-makers slammed their foot on the brakes and nothing happened, some even suggested that the euro lacked legitimacy because it was not really a currency at all. Nobody could touch it, bite it, stick it in a parking meter or hand it to a plumber in return for slicing 20% off the bill.

A year from now, their wish will come true. From 1 January 2002, 56 billion euro coins weighing 250,000 tons and 13 billion banknotes will hit the streets and, for a maximum six months but in reality much less time, they will circulate in parallel with national currency.

By July, anyone wanting to look at paper deutschemark, franc, lira, guilder, markka, drachma, peseta, escudo, punt and schilling will have to go to the central bank museums.

The logistical task is fantastic. In Germany alone, transport for this cash will require 2,400 trucks or 49 twenty-coach trains. The national central banks will transport the cash to all the branches of each country's commercial banks and savings associations where it will be stored and issued to individuals and companies as they come in to swap old notes and coins. As people shop during the January sales, their change will be in euro only. The Association of German Banks and the Bundesbank expect a third of the total cash in hand to be exchanged within the first week.

Not everybody watches the news and many of those who do fail to take it in. Millions of people in the 12-nation euro area have no idea it is coming despite dual pricing, television public-information broadcasts and advertisements by banks desperate to win customers for their new euro-based products.

For this reason, some governments campaigned to accelerate the transition. When they met in the opulent surroundings of Louis XIV's Versailles palace last September, the EU's 30 finance ministers and central bankers were pressed by the Belgian authorities to "front-load" the issue of the banknotes and coins. This would have meant that the new physical currency would be released to banks and business in advance of the 1 January 2002 deadline to get them used to it.

The plan was rejected, not least because the European Central Bank hated the idea. All that was agreed was that packs of coins will be released early and displayed in post offices but nothing like this will be done for notes.

There may be confusion enough. There are 15 different denominations of notes and coins ranging from 1 cent to 500 euro. Values up to two euro will be minted as coins and anything above five euro as paper. This gives a grand total of seven different bank notes and eight coins.

For at least six weeks from 1 January onwards, there will be two series of notes and coins in circulation in 12 European countries. Banks and retailers will have to count and sort both of them, which will require new equipment or re-construction of existing machines. Cash registers as well as coin- and note-handling machines will have to be able to process both currencies at the same time, while the customer will have to be paid in euro only.

Coin use will increase because of the high value of the pieces. During this period of dual circulation, national coins and bank notes will gradually be withdrawn from circulation and exchanged for euro. This will be done automatically when withdrawing cash from bank or post office accounts either from a teller or ATMs, when exchanging notes and coins in the bank or when making a retail transaction. Banks will charge for a cash-exchange transaction to cover costs arising from the process.

The huge amount of vending and coin-collecting machines out there rely primarily on the dimensions of the coins and on electrical parameters. Many coin sorters and counters will only be able to accept one set but some can separate and count the two coin sets simultaneously.

German bank WestLB has warned all its business clients that "all suppliers of cash handling systems will be overloaded with work as we get closer to January 1, 2002, so think about this now" .

The slowest pace of preparation is to be found among small businesses. Economics Commissioner Pedro Solbes believes that although small companies are increasingly switching to the euro, they are not doing so fast enough. The number of payments in euro, for example, has gone up but, as recently as two months ago, still represented only 2.4% of all transactions.

A survey by Eurobarometer of nearly 3,000 small and medium-sized enterprises in the 12 euro-zone countries showed that only 10% of them already invoice in euro, and that the remainder are awaiting the end of the transitional period in 2002 before they start doing so.

While 20% of large firms in the euro zone have switched over entirely, and a further 40% intend to do so in the coming year, only 15% of small euro-zone companies already carry out operations in the new currency, according to a report by consultants KPMG. Solbes even fears that some small businesses mistakenly believe the transitional period will carry on until June 2002, little realising that the cut-off date is January 2002.

Several governments, well aware that their people are nowhere near ready for the surprise that is about to hit them, are playing amateur psychologists.

All of them will sell "starter kits" of coins in mid-December while in France, the near-monopoly gas and electricity distributors have just begun issuing bills entirely in euro except for the total to pay.

The French authorities have told big companies that, by this summer, they must have finished their euro preparations, publish their accounts and invoice in euro. From July, the state will respond by issuing salary statements to civil servants in the new currency.

In the spring, most banks will have to conduct all their checking accounts in euro and, from September, in theory at least, customers will no longer receive cheques in francs.

Most countries will be offering a truncated dual-circulation transition to avoid months of confusion and excessive costs for retailers and banks. In France, the franc ceases to be legal tender from 17 February and, in Germany, the 'beautiful D-mark' will fade away 11 days later.

The euro will be made flesh, or paper and metal at least. This will be the greatest test yet of the new currency's proponents' proudest boast: that a single currency will promote price transparency across the internal market.

So far, this exists for companies only. With the new notes and coins, consumers are likely to shop around across borders for big-ticket durables like cars and electronics.

If the euro fails to benefit from this and the slowdown in US growth, there will be no more excuses.

Major feature. In less than a year, 56 billion euro coins and 13 billion euro banknotes will hit the streets. But as E-day approaches, many businesses have still not started preparing for the single currency.