No blank cheque to cover banks’ change to euro

Date: 27/11/1997

By Chris Johnstone

BANK customers should be cushioned from the costs of switching over to the euro by the allocation of a 'household allowance' of notes and coins which would be exchanged free of charge, according to a report ordered by the European Commission.

Similarly, it says, account holders should not be charged for the conversion of cheques denominated in a national currency into euro.

The recommendations are contained in a report from a working group asked by the Commission to investigate how banks should handle the introduction of the single currency.

The group's findings amount to a qualified victory for the banking sector. They conclude that banks should not be burdened with new rules to govern the switch-over, at least initially, but does not absolve them from all the costs of the transition.

Broad guidelines make it clear that the sector will have to shoulder some of the expense. But the report leaves some of the detailed questions about how this will happen unanswered.

It also warns that regulations could be introduced at a later date. Consumer groups represented within the group have insisted that legislation could still be rushed in by the European Commission if banks do not appear to be coping with the transition.

The question of who pays for the single currency has been occupying banks for months.

Officially, the sector has said all along that central banks and national governments should cover the costs of the Maastricht Treaty decision to introduce the euro, or pay banks for carrying out some of the practical tasks.

However, in practice, most banks have come round to recognising that they will have to bear part of the burden.

While stressing that customers should not be charged for the conversion of cheques denominated in a national currency into euro, the report says banks should be allowed to cover some of the costs involved in exchanging the millions of national notes and coins for their single currency replacements at the start of 2002.

The issue of how many notes and coins per household will be exchanged free of charge has not yet been settled. Although banks have considered the possibility of accounts being opened solely for the sake of profiting from the free exchange of currency, safeguard measures to prevent this have not yet been devised. "No matter what solution you think of, it can usually be circumvented," said one banking source.

Another idea suggested by the group is for banks to sign up to a code of good conduct for the introduction of the euro. Those falling into line with the demands of the voluntary code would be able to point to this in their advertising and promotions.

Although the report has been completed, consumer groups are still pressing the Commission for clarification as to whether banks should be legally allowed to levy charges when converting national currency into euro.

Such charges, on top of the exchange rate gains which will accrue to banks, would add up to a double benefit, claims working group member Fabrice Campens, of the European Inter-Regional Initiative for Consumer Organisations.

Report of a European Commission study on how banks should handle the introduction of a single currency.