Countdown to euro's great metamorphosis

Europe has eight months to prepare for the introduction of the single currency's 50bn coins and 14bn notes
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The Independent Online

In the cavernous modern foyer of Belgium's national bank, security cameras perch high above the entrance and armed guards look on warily. The building might not look like Fort Knox but behind the security doors lies a printing plant churning out half a billion new banknotes.

In the cavernous modern foyer of Belgium's national bank, security cameras perch high above the entrance and armed guards look on warily. The building might not look like Fort Knox but behind the security doors lies a printing plant churning out half a billion new banknotes.

On 1 January 2002, 12 EU countries will switch currencies in an operation unparalleled in history. Never before have 12 countries changed legal tender at one time. Across the eurozone, at least 50 billion coins, worth 16bn euros (£10bn), will be circulated, along with 14.25 billion notes with a face value of 642bn euros. The change-over's success will be crucial to the image of a currency that has been battered by the foreign exchange traders since its creation in 1999; for Wim Duisenberg, president of the European Central Bank, January will be another crucial test.

Even in a small county like Belgium, the problems ahead are formidable. Its first task is to produce 2 billion coins, weighing 9,000 tons, and 530 million banknotes. So large is the enterprise that officials have allocated an extra 27.3m euros to cover security costs alone. The Interior Ministry has drawn up a contingency plan to use the army if needed.

In a brief lull between a round of hectic meetings, Nabil Jijalki, head of division for Belgium's general commission on the euro, argued that, purely by dint of how much currency will be changed in such a short period, "nothing like this has ever happened before".

Officials and central bankers have a host of other distractions. They must produce and package "mini-kits" of coins to help acclimatise the public to the currency before its introduction and confer with the European Central Bank to ensure that notes (which are produced under licence from the ECB) are up to standard. They must also help publicise arrivals while not offering exploitation opportunities for fraudsters.

All eurozone countries will begin distribution early so banks and businesses, at least, will be front-loaded with cash before the official change-over. In Belgium, France, Germany, Italy, Spain, Ireland, Luxembourg, Austria, Finland and Portugal, the process begins in September. Greece will start in October and the Netherlands in December.

In Belgium coins will be first, going out to banks in September with notes following in November. The financial institutions will, in turn, supply businesses with small quantities of notes and coins before 1 January.

While dealing with distribution of the new currency, central banks simultaneously wrestle with the problem of recovering the old. The idea is to try to avoid bottlenecks by recouping some old notes and coins before January. In Germany, the Bundesbank is about to launch a campaign to help recover millions of hoarded notes and coins; Belgium will start its "piggy bank operation" on 15 October.

Research suggests that finance ministers are in line for a considerable windfall when millions of hoarded coins are not returned. Of the 4 billion coins in circulation in Belgium, 1.04 million are thought to be held in piggy banks, with 1.76 million being used in payment circuits.

In the Belgian change-over plan, about 1.16 billion coins cannot be traced either via the surveys or examination of payments flows ­ a large proportion of which is either lost or abroad and will not be presented for exchange, leaving just 2.8 billion coins to be recovered. Some estimates indicate as many as half of all French coins could be lost or taken abroad by the country's millions of visitors.

After "E-Day" in January, central banks will aim to consign their old currencies to history within days. Most countries are will allow the dual circulation of old and new currency until the end of February, although in France the cut-off date will be 17 February, in Ireland 9 February and in the Netherlands 28 January. But even those with a two-month timespan want to make the change-over short and sharp. Belgium plans to put a "critical mass" of notes into circulation quickly so that "at the end of about 15 days the very great majority of cash transactions will take place in euro". From 1 January, no ATM will supply Belgian francs, while existing notes will be exchanged free of charge.

Will it work? Eurocommerce, which represents European retailers, believes the lack of front-loading of euro notes for consumers could bring gridlock in early January. While businesses will be primed with euro banknotes, the public will only be able to get "mini-kits" of coins worth a total of 12 euros before the January launch.

Central banks are reluctant to front-load consumers because they are wary about compromising security and believe that, in any event, the amount of cash that could be made available per household would make little difference.

But Carole Brigaudeau, euro adviser at Eurocommerce, is concerned about what will happen when customers present large-denomination euro notes drawn from ATMs. She argued: "The first few clients will get change, but then the retailers will have none left. Most shops will also keep the old currency under the till in safety boxes because they do not want to recirculate it."

All of which suggests that the success or failure of the crucial first few days after 1 January is likely to depend on how alternative, electronic forms of payment hold up. The proportion of non-cash transactions has risen dramatically since the UK went decimal a generation ago, but these systems have been known to fail at time of great demand.

Discussions are under way with credit card companies and banks to try to provide extra capacity and avoid a potentially catastrophic systems crash.

Overall Mr Jijalki remained optimistic. "I do not exclude the possibility that there will be some local problems," he said. "I would be crazy to do so. But we have been working on the practical aspects of this since 1996.

"Things are under control and are going well for us to have the quantity and quality of notes and coins ready in time."