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The introduction of euro banknotes and coins: one year on
The European Commission reviews the introduction of euro notes and coins one year after the event, focusing on the practical aspects of the introduction of euro notes and coins, public reaction, inflation and use of the single currency outside the euro area.
Commission communication: The introduction of euro banknotes and coins -- one year after [COM(2002) 747 final - Official Journal C 36 of 15.02.2003].
In the very first year of its existence in cash form, the euro quickly became part of the everyday life of Europe's citizens. Most of them feel happy with the euro. Only one in five still has difficulties.
NOTES AND COINS IN CIRCULATION
Notes. At the beginning of January the euro-area's central banks put 7.8 billion notes into circulation. The amount in circulation then fell, but rose again to reach 7.42 billion in October. The total value of notes in circulation reached 320.9 billion, or 4.5% of the euro area's GDP.
The 50 note is the most common, both in number and in total value. It represents one third of the total value in circulation. In some Member States discussion arose about whether 1 and 2 notes should be introduced in addition to or as a replacement for the 1 and 2 coins. But the surveys show that 83.7% of citizens find the number of different denominations of banknotes just right (Eurobarometer survey, November 2002).
Coins. At the beginning of January the euro-area's central banks put 40.4 billion coins into circulation. This amount dropped after mid-January, reaching 38.2 billion at the end of October. In value terms, this represents 11.9 billion. The number of coins per inhabitant varies widely among euro-area Member States, reflecting different national payment habits.
Some discussion of the usefulness of the low-value coins, especially the 1- and 2-cent coins, arose in some Member States. In Finland the law requires euro cash payments to be rounded to the nearest five cents and production and use of the 1- and 2-cent coins are therefore limited. According to the Eurobarometer poll, 53.5% of the euro-area population believes that the number of different denominations of coins is just right. The small coins also played an important role in helping to ensure that price conversion from national currency units was done correctly.
Cross-border euro flows. Euro notes and coins migrate as a result of travel, cross-border shopping and the redistribution process between national central banks, commercial banks and retailers. The mix of euro notes and coins (the origin of notes is identified by their serial number) will increase over time and probably reach an equilibrium level, but it is unclear at what pace this will happen. Some patterns are already emerging: it appears that coins of different denominations mix at different rates and that the high-value coins are more prone to migration. The number of "foreign" coins also varies from one place to another, e.g. it is different in urban and rural areas and in border regions.
Collector's coins. The Member States have retained their right to mint euro-denominated collector's coins that often contain precious metals and which have a nominal value and are legal tender. Unlike euro coins in circulation, collector's coins will be legal tender only in the Member State which issued them. Their technical specifications must differ from the characteristics of "normal" coins. By the end of 2002 80 euro-denominated collector's coins had been issued, with their face values ranging from 25 cents to 400 euros.
Medals. Medals also exist but do not have legal-tender status. To avoid confusion, they must not be denominated in euros, or bear the euro symbol or any design similar to the euro coins in circulation.
Commemorative coins. Member States may also issue euro-denominated commemorative coins. These are legal tender throughout the euro area. Their technical properties, sizes and face values correspond exactly to those of euro coins. The design on the national side may, for example, commemorate a special national event. In order to allow European citizens to familiarise themselves with the new currency and to avoid any possible confusion, Member States have agreed not to issue commemorative coins during the early years following the introduction of euro notes and coins.
Use of nickel. The 1 and 2 coins still contain a small amount of nickel, but 85% of coins are nickel-free, which is a vast improvement on national currencies. Nickel is used for security reasons, mainly in the central part of the coins, to make them less prone to counterfeiting and to allow them to be reliably identified in vending machines. Compared with the old national currencies, the 1 and 2 coins release only about half as much nickel.
Counterfeiting. The Commission and the Member States have set up a network of institutions for the fight against counterfeiting, with the participation of the European Central Bank (ECB) and Europol. Owing to the state-of-the-art security features of euro notes and coins, euro counterfeiting has remained at levels well below those for the old national currencies. In the first half of 2002 the ECB recorded only 7% of the number of counterfeit notes recorded in the same period in 2001. The number of counterfeit coins is negligible.
THE CITIZEN AND THE EURO
Calculating in euros. According to the Eurobarometer poll, 51.5% of euro-area residents have no difficulty using the euro. This result ranges from 71.7% in Ireland to 36.5% in France. 42.2% of respondents calculate mainly in euros when making purchases. Only exceptional purchases (a house or a car) are still mainly calculated in the old national currency.
Dual display of prices. The dual display of prices facilitated the changeover to the euro. The Eurobarometer poll shows that a slight majority (50.6%) no longer want shopkeepers to continue with the dual display of prices. Continued dual display is a mixed blessing. On the one hand, it helps people to adapt to the new currency but, on the other, it delays the mental conversion of the population to the euro. The Commission therefore recommends phasing out dual display by 30 June 2003 at the latest, including on bank statements.
General satisfaction. 49.7% of euro-area citizens consider themselves to be very or rather happy that the euro has become their currency, as against 38.7% who are quite unhappy or very unhappy. The figures vary significantly depending on the Member State, ranging from 84.2% who are satisfied in Luxembourg to 27.8% in Germany. More than two thirds find it easy to handle the various euro coins. An overwhelming majority (92.6%) say that they have no difficulty with the different national sides of the coins but find them a welcome source of diversity. In addition, 92.8% find the various euro notes easy to handle.
Cross-border trade and price transparency. The introduction of euro notes and coins strengthens the integration of markets in the European Union (EU) by eliminating exchange-rate risk, reducing transaction costs, and abolishing a psychological barrier to cross-border trade through price transparency. Since the changeover to the euro, 12% of European consumers are more interested in buying goods in another EU country. The attitude of companies has changed even more significantly: on average, 32% of businesses in the EU indicate that they are more interested in selling their goods abroad.
IMPACT OF THE EURO CHANGEOVER ON INFLATION
Medium- to long-term effect. The introduction of the euro will have a beneficial medium- to long-term effect on prices, as a result of much easier comparison of prices across the euro area, improved functioning of the single market and a more competitive environment, which will foster economic efficiency. This should be reflected in lower consumer prices.
Pattern of consumer prices. In January 2002, when euro notes and coins were introduced, overall inflation as measured by the Harmonised Index of Consumer Prices (HICP) rose noticeably, from 2% in December to 2.7% in January. It subsequently fell to 1.8% by June, the lowest in more than two and a half years.
Possible impact of the euro changeover on inflation. Eurostat published estimates of the inflationary impact of the changeover to euro cash on three occasions. Most of the observed inflation could be explained by factors not linked to the euro, such as normal inflation patterns, bad weather affecting fruit and vegetable prices, increased energy prices, increases in administered prices and taxes. According to these studies, this left a range of 0 to 0.2 percentage point that could be attributed to the changeover to the euro.
However, the studies also point to significant price jumps in the services sector (hotels, repairs, haircuts, etc.). For example, prices in the cafe and restaurant sector recorded a year-on-year increase of 4.3%.
Actual and perceived inflation. Many consumers associate the changeover with a general rise in prices. According to the November 2002 Eurobarometer survey, 84.4% of respondents thought that prices had been converted to the detriment of consumers, while 10.9% thought that prices had been rounded up and down equally. There are several explanations for the discrepancy between actual and perceived inflation.
First, consumers tend to form their perception about inflation on the basis of frequently bought goods and services (cafes, restaurants, repairs, haircuts, newspapers, etc.) and it was these goods and services which registered unusually large price increases following the changeover. Prices for other goods and services have recorded smaller rises or have even been falling (computers, cameras, etc.). These developments can offset one another in a comprehensive index like the HICP.
A second reason might be "menu costs". These are the costs of changing prices, and this factor could have led to an unusually high proportion of firms changing prices at the turn of the year. If such price adjustments involved upward rounding and concerned the items used by consumers to form their perception, then the discrepancy between actual and perceived inflation does not come as a surprise.
OVERVIEW BY SECTOR
Banking industry. The introduction of the euro seems to have slightly changed customer behaviour with regard to the choice of means of payment. According to the available statistics, payments by credit card, debit card or electronic purse rose significantly in 2002. It is not possible to clearly isolate the euro's effect on the general increase in the use of such payment instruments in recent years. The withdrawal of the eurocheque system contributed to these developments.
Cash amounts withdrawn at automatic teller machines (ATMs) have increased in a number of countries. This can be explained by the new banknote denominations and rounding effects.
With regard to cross-border withdrawals, the picture is diverse. Some Member States report an increase in such transactions, others a drop. This is because monetary union allows citizens to travel abroad with cash. Moreover, since 1 July 2002, the EU Regulation on BG) (CS) (ET) (GA) (LV) (LT) (HU) (MT) (PL) (RO) (SK) (SL) has required charges for cross-border withdrawals to be the same as for national withdrawals.(
As regards dual display of amounts, notably on account statements, many banks have continued this practice during 2002 and are considering extending it into 2003.
Retail sector. The retail sector played an important role during the changeover by distributing euro notes and coins and withdrawing the old national currencies. The dual display of prices greatly contributed to facilitating the changeover to the new currency, with many retailers deciding to continue this service throughout 2002.
Cash-in-transit sector. The CIT (cash-in-transit) sector played a key role in the changeover to the euro. Difficulties continue to hamper the transfer of cash from one country to another since the relevant rules have not yet been harmonised. The cash centres responsible for counting and sorting cash were under heavy pressure for several months.
Vending industry. Although the vending industry tried to adapt its vending machines as early as possible, some operators indicated temporary turnover losses at the beginning of the year. Cash-based machines, accounting for the vast majority of all vending machines, presented the biggest challenge. Operators frequently decided to replace their validation mechanisms, which represented a significant investment. It was easier to adapt electronic-purse systems.
Automatic validation of coins. As regards the validation of euro coins, whatever their origin, this posed no problem for the machines since the coins meet the demanding requirements of modern validation. Typically, vending machines accept all coin denominations except the 1- and 2-cent coins. Prices are generally rounded to the nearest 5 cents and price adjustments in both directions were observed.
EURO CASH OUTSIDE THE EURO AREA
It appears that the use of the euro has been increasing, particularly in European countries outside the euro area. In other continents its use is mostly confined to tourist areas.
Situation in Denmark, Sweden and the United Kingdom. A majority of European citizens outside the euro area have already held euro notes or coins in their hand, while many people have noticed products in their country labelled in euros. In Denmark, businesses are prepared to accept cash payments in euros and 13% even practice dual pricing. In Sweden a large number of shops, hotels and restaurants accept euro cash payments, especially along the border with Finland. The Swedish town of Haparanda has even decided to adopt the euro as the currency of payment. Prices are displayed in Swedish kronor and in euros, and the town's budget is presented in the two currencies. The Swedish Government has set the date of 14 September 2003 for a referendum on entering the third stage of economic and monetary union (EMU). In the United Kingdom, especially in London and tourist areas, the euro is sometimes accepted for payments and dual pricing is practised occasionally.
Candidate countries. The introduction of euro cash has had some impact in the candidate countries as well. Ultimately, these countries are set to adopt the euro as their national currency. Shops, hotels and restaurants in most of them accept euros and in tourist areas prices are often displayed in euros. The use of the euro is most widespread in Bulgaria and Turkey, where it can be considered a parallel currency, together with the US dollar.
Other European countries. The Community has concluded agreements with Monaco, San Marino and the Vatican City authorising them to issue a certain quantity of euro coins. However, they are not authorised to issue euro notes. In Andorra the euro is circulating as the means of payment in place of the French franc and the Spanish peseta, as the country does not have a national currency. The euro is also used for payments in Kosovo and Montenegro, where it has replaced the German mark. In many countries, especially in the Balkans and eastern Europe, the euro as well as the US dollar are commonly used for transactions.
Africa. The euro is important in transactions in countries where the domestic currency is linked to the euro by a fixed exchange rate regime. This is the case in all countries belonging to the CFA zone (the Central African Economic and Monetary Union and the West African Economic and Monetary Union), as well as in Cape Verde and Comoros.
America. The entire American continent is strongly US-dollar-oriented and the introduction of euro cash has had only a limited impact. In the French overseas departments and territories (French Guiana, Guadeloupe, Martinique, etc.) the euro is the official currency. In the Dominican Republic, Cuba and Surinam payments in euros are possible, especially in tourist areas.
Asia and Oceania. In the Middle East the euro has had a very limited impact. Only in Israel is the use of the euro somewhat more common. In Asia the introduction of the euro has had a more significant impact. In Thailand, South Korea and Laos the euro is widely accepted in shops, restaurants and hotels. However, the US dollar remains predominant in international transactions. In Oceania, on the other hand, the euro is not yet accepted as a means of payment, except in the French territories in the region. In Australia and New Zealand the euro is seen as an alternative to the US dollar on international markets.
For more information, please consult: Eurobarometer surveys.