Although euro notes and coins would not replace the pound until 2004, sterling could be "locked in" to the single currency by 2002, it emerged yesterday. In the interim, people could use the euro as an "electronic currency" by using credit cards and cheques drawn on euro accounts.
Britain would then be in the same position as the 11 EU countries that launched the euro last month, but which will not use euro notes and coins until 2002.
Government sources confirmed yesterday that Britain could enter the single currency much quicker than suggested by the national changeover plan unveiled by Tony Blair on Tuesday.
This envisaged a gap of 24 to 30 months between the referendum and the introduction of euro notes and coins, but left open the critical "joining date" at which Britain locked exchange rates with the euro zone.
Treasury officials said yesterday the key date was still unresolved, and the Government would now hold talks with British business and the European Commission.
Gordon Brown, the Chancellor, wants to limit the period between the referendum and the locking of exchange rates to avoid unsettling the financial markets. But the business world wants as long as possible to prepare.
In Brussels, the European Commission said Britain would be given the green light to link the pound to the euro soon after the referendum if the economy had achieved "sustainable convergence" with the euro zone.
A spokesman said: "Once the European Council has taken the decision that the UK meets the necessary conditions, the way would be open for the UK to join monetary union in the sense of fixing exchange rates, ahead of the introduction of notes and coins."
Although Britain would have to show it had a stable exchange rate, other EU countries are unlikely to insist on the Maastricht Treaty's requirement for member states to join the exchange-rate mechanism (ERM) for two years before entering the single currency.
In the Commons yesterday, Mr Blair clashed with William Hague after the Tory leader said Britain would have to "shadow" the euro before it would be able to join it.
Mr Hague urged Mr Blair to "come clean" and admit economic policy would now be dictated by the interests of Brussels. But, the Prime Minister said, "if this is the latest of their euro scares, it will fail like the other ones."
Although Mr Blair's policy statement on the euro has been welcomed in Brussels, he will be isolated at an informal meeting of EU leaders in Germany tomorrow to discuss the EU's future funding. The other 14 countries want to end Britain's special rebate on contributions to the EU budget.