Euro Primer: What the New Currency Means for You
How will the euro work? What does it mean for tourists and consumers? What’s the point? Here is a primer on the new money:
Q: What exactly is the euro?
A: A single currency to replace the franc of France, the mark of Germany and the currencies of nine other members of the European Union: Austria, Belgium, Finland, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain. The other EU states--Britain, Denmark, Greece and Sweden--may join later.
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Q: Why are they doing this?
A: It is the biggest step in Europe’s long effort to create a single market, eliminate the costs and headaches of converting money from one currency to another, and give the continent more clout in the world economy.
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Q: How much will a euro be worth?
A: A value of $1.17 was fixed by EU finance ministers in Brussels on Thursday. But from now on, the euro’s value against the U.S. dollar, Japanese yen and other currencies will rise and fall on international exchanges according to demand.
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Q: Will this mean American tourists who land in Paris, Amsterdam or elsewhere in the euro zone in 1999 will have to change their dollars into euros?
A: No. Euro bills and coins don’t actually begin circulating until Jan. 1, 2002. In the meantime, the French francs, Portuguese escudos and the rest will continue to be used for all cash transactions. But legally, they are now denominations of the euro with official fixed rates of exchange between them.
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Q: If actual cash in euros is still three years away, what exactly changes now?
A: As of Monday, the first business day of the new year, all securities issued by euro member governments will be denominated in euros. Stock prices will be quoted in euros only. Trading in the euro itself will begin Monday, though an interbank market could start over the weekend. Private financial transactions calculated in the single currency among banks, other financial institutions and big companies are expected to become the rule very quickly, probably by the end of this year’s first quarter.
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Q: Will prices in stores in euro countries be posted in euros or just in the old currencies?
A: Typically both. Dual pricing has already become common to get Europeans used to their new money.
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Q: Will there be immediate effects for the consumer?
A: Though people won’t be using euro coins and bills, they will be able to open checking accounts, credit card accounts or traveler’s checks issued in euros. For business travelers, this should do a lot to end the headaches of currency conversions.
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Q: Other than the governments and stock exchanges, is anyone required to deal in the euro during the next three years?
A: No. Member governments have agreed that use of the euro will “neither be compulsory nor prohibited.” Before 2002, businesses, especially small ones, may be reluctant--and aren’t required--to accept checks or other forms of payment in euros. But most commercial enterprises are expected to quickly become euro-savvy.
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Q: What happens three years from now?
A: On Jan. 1, 2002, paper and coin euros will be introduced in the 11 countries. For six months, the new euros and the old, familiar moneys will both be legal tender. No later than July 1, the old money is to be withdrawn from circulation and shredded or melted down.
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Q: Who is in charge?
A: A new European Central Bank in Frankfurt is in control of monetary policy, including setting interest rates. Its mandated mission is to keep prices stable. Its president, Dutchman Wim Duisenberg, has been called the Alan Greenspan of Europe. There are five other members of the bank’s executive board from France, Spain, Italy, Germany and Finland. Along with governors of the 11 national central banks, they are supposed to meet twice a month to define and execute monetary policy, manage reserves in the member banks’ vaults and promote the smooth operation of foreign exchange and payment systems.
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Q: Will contracts, government bonds or treasury bills in currencies that are being supplanted by the euro still be valid during the next three years?
A: Yes, say legal experts. In some cases (for example: German T-bills), they will be recalibrated in euros at the official exchange rate but will be redeemable in national currency.
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Q: How can Americans learn more?
A: The Department of Commerce has started a Web site (https://www.mac.doc.gov) that features questions and answers on the euro, fact sheets and links to information sources in the United States and Europe. The European Commission, executive arm of the European Union, has its own Web site on the euro: https://europa.eu.int/euro.
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What’s in a Euro?
The euro, which will be traded against other currencies on world exchanges beginning Monday, will start with the following values:
1.167 U.S. dollars
132.800 Japanese yen
0.705 British pounds
7.449 Danish kroner
329.689 Greek drachmas
9.488 Swedish kronor
1.806 Canadian dollars
1.608 Swiss francs
1,403.020 South Korean won
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The new euro will have a permanently fixed value against the 11 national currencies it is replacing. A euro will be worth:
1.956 German marks
40.340 Belgian francs
40.340 Luxembourg francs
166.386 Spanish pesetas
6.560 French francs
0.788 Irish punts
1,936.270 Italian lire
2.204 Dutch guilders
13.760 Austrian schillings
200.482 Portuguese escudos
5.946 Finnish markkaa
Sources: Bloomberg News, European Commission