Unfamiliarity with euro notes and coins means that confusion and delays in
transactions are inevitable
the launch of euro notes and coins gets underway, the BBC's Dharshini David
considers what the switch could mean for the 12 economies concerned.
It is the largest currency changeover ever
made. The introduction of the euro will require the exchange of 15 billion
notes - enough to stretch to the moon five times - and 50 billion coins.
Central Bank floors are being strengthened
to cope with the weight of the cash, and distribution of the currency will
require the help of police forces and border guards.
But the introduction of the euro notes and
coins is not just a huge logistical challenge. It is also likely to have a
sharp, if short-lived impact on the economy. Most marked will be the effect
on consumer spending, inflation and businesses.
On January 1st or E-day, the euro became
legal tender. Consumers and businesses have less than two months from then to
convert their cash from their existing currencies. The short timetable, and
an unfamiliarity with euro notes and coins means that confusion and delays in
transactions are inevitable.
In shops, retailers have to to use two
tills to deal with both their national currency and euros. Euro commerce, the
European retail organisation has estimated that if each transaction takes
just 20 seconds longer than usual, retail turnover could fall by over 10%.
Wage change crucial for ECB when trying to keep inflation low
As queues and disruption grow, consumers
could defer purchases, further hitting sales. That would depress spending in
the euroland economies temporarily, although the size of the impact is
uncertain. At a time when Germany in particular is showing signs of weakening
anyway, this would be far from welcome.
Of course, in an attempt to avoid delays
and frustrations, consumers may bring forward purchases to the period just
ahead of the New Year - causing a temporary blip in spending over and above
the normal Christmas rush.
There is also a case for thinking that
spending may be boosted in the run-up to E-day, if people try to dispose of
cash in the "old" euro currencies earned in the informal, or black
Anecdotal evidence suggests the value of
the liras and francs being removed from under the bed may exceed 100 billion
euros. But whatever the impact is on spending, it is likely to be
Rip-off pricing fears
Dual pricing, of goods and services, in
euros and the national European currencies has existed for some time.
But, bearing in mind that the euro tends to
be fixed at very precise rates, such as 1 euro = 6.55957 French francs, it is
not easy to mentally calculate what prices should be in euros. And the answer
won't be a simple round number.
The fear is that retailers will therefore
take the opportunity to "round up" prices on E-day. There is some
evidence that some firms have already hiked prices for this reason in
anticipation, to avoid being seen to do so on E-day.
But concerns over rising prices may be
overdone. Many experts have pointed out that when the UK switched to a
decimal system 30 years ago, a similar exercise to the euro changeover, there
was little impact on prices.
Nevertheless, Grant Lewis, European
Economist for Daiwa Securities points out that even if people believe prices
have risen, it could be damaging.
"Even the perception that consumers
have lost purchasing power as a result of the changeover will result in
unions pushing for generous pay increases."
And if wages rise faster, there is a risk
that inflation could subsequently rise.
Costs for business
For the ECB, charged with setting interest
rates to keep inflation low, the impact on prices and wages is crucial.
Inflation is already above its target. But
with growth weakening, further interest rate cuts may be needed. However, if
inflation rises further, the Bank's ability to deliver rate cuts could be
It is not just consumers but also
businesses who could find the switch to the euro disruptive. Small and medium
sized firms in particular are widely unprepared for the event, according to
research from the EU Commission. This could cause problems in areas such as
the payment of staff, and purchase of goods and services.
Of course, one factor that shouldn't be
forgotten is the cost of the actual changeover. This includes public
awareness campaigns, changing payment systems, converting and replacing cash
machines and producing notes and coins.
Such costs are difficult to estimate, but a
study from economists at BNP Paribas suggests, "a total estimated cost
for the changeover in the eurozone around 160-180 billion euros (£100bn-£130bn)
- almost twice the size of the Irish economy." Most of this is likely to
fall on the private sector.
It is difficult to estimate exactly what impact
the switch to the euro will have on member economies, but it is likely to
have implications for all - consumers, businesses and governments alike.
from bbc.co.uk: 2.1.02